Consumer Spending Returns in 6 States

Consumer spending indicators in six states could provide hope for small business owners in other parts of the country amid the coronavirus pandemic, according to the latest LendingTree research.

The recovery is lopsided, though. If you’re in the grocery business, things have perhaps never been better. Spending at grocery stores nationally was up 10.4% at the end of July compared to January, with upticks in all but two states (Iowa and Alaska). On the other hand, arts, entertainment and recreation businesses are suffering, as spending in that category at the end of July was down 51.5% nationally compared to January.

Key findings

• Consumer spending in Hawaii was up 6% — the highest overall — in July relative to January. Spending at grocery and food stores led the way at 22.1% higher.
• Michigan saw the second-largest uptick in consumer spending in July relative to January. Our analysis shows that consumer spending was 4.1% higher on average relative to the beginning of the year.
  • The other states that saw consumer spending increase were Arkansas, West Virginia, Idaho and Kentucky.
• District of Columbia business owners suffered the most. Consumer spending was down 18.2% relative to January. Spending was down in each category tracked, except grocery and food stores.
• Small business owners in California are still facing plenty of difficulties. Our analysis shows consumer spending in the state was still depressed, sitting 13.6% lower in July than it was in January.
• Spending on transportation was also down and not recovering. The average state saw spending decrease by 47.2% in this category. No state saw spending increases here.

States where consumer spending has rebounded the most

1. Hawaii

Despite consumer spending on arts, entertainment and recreation being half (50.5%) of what it was in January, grocery and food stores paved the way for Hawaii. The Aloha State saw a 22.1% jump in grocery and food store spending, the third-highest increase in the category in the U.S. Hawaii’s unemployment rate rebounded solidly in June (13.4%) and July (13.1%) after reaching 23.8% in April. In mid-June, Hawaii allowed inter-island travelers to fly without requiring a 14-day quarantine, which could have provided a boost to spending in the state.

2. Michigan

Michigan saw its largest consumer spending increase at general merchandise stores (15.9%). The state saw a large drop (-38.3%) in arts and entertainment spending. But as jobs returned in July — the state’s unemployment rate dropped to 8.7% that month after hitting 24% in April — spending returned. As of Sept. 15, Michigan hasn’t issued travel restrictions related to the coronavirus pandemic, though it recommends reaching out to local health departments when visiting the state.

3. Arkansas

In Arkansas, consumer spending was 2.9% higher than it was in January. Spending at general merchandise stores, which led the increase, was more than 13.2% higher than it was in January. Unemployment rates in the state didn’t see as severe a spike as elsewhere, reaching 10.8% in April before dropping to 7.1% by July. In mid-June, Arkansas removed its 14-day quarantine requirement for travelers coming to the state both domestically and internationally.

States where consumer spending has rebounded the least

51. District of Columbia

The District of Columbia experienced a 28.3% jump in spending at grocery and food stores, ranking first nationally. We’re highlighting good news first to illustrate how poorly it placed in the other categories to be the state with the biggest drop in spending. D.C. saw its largest drop in spending across transportation and warehousing (71.7%), which coincided with a decrease in employment in the trade, transportation and utilities industries from January to July. The District of Columbia — as of Sept. 15 — requires travelers from 30 states, including nearby Delaware, to self-quarantine for 14 days. It first released the high-risk-states list in July.

50. California

Californian’s spending surged the most when it came to grocery and food store purchases (14.6%), and dropped the most across arts, entertainment and recreation (61.2%). The number of daily coronavirus cases regularly reached new highs in July, which could play a role in the spending decrease. Stricter stay-at-home orders were also implemented that month, limiting consumers’ potential to spend on entertainment and recreation.

49. Iowa

Consumer spending in Iowa was 13.1% lower in July than it was in January. Spending on transportation and warehousing (49.9%), as well as arts, entertainment and recreation (50.3%), was about half of what it was in January. The state’s governor lifted the 50% capacity limit for businesses in mid-June, but that didn’t seem to have much of an effect for Iowa overall in terms of consumer spending.

Largest gains, drops by consumer spending categories

During economic difficulties, it’s understandable that many consumers may want to cut back on discretionary spending. All states saw a drop in spending in arts, entertainment and recreation in July compared to January.

One thing consumers can’t typically cut back on is grocery and food store spending. With many restaurants closed and consumers tightening their belts in 2020, it’s understandable that 49 states (including the District of Columbia) saw a rise here. Here’s a look at the big shifts in consumer spending.

Largest gains

• Grocery and food stores: Up in 49 of 51 states
• General merchandise stores and apparel and accessories: Up in 23 of 51 states

Largest drops

• Arts, entertainment and recreation: Down in 51 of 51 states
• Transportation and warehousing: Down in 51 of 51 states

How small businesses can adapt to consumer spending drops

It’s easy to imagine how consumer spending trends can affect small businesses. There are steps that small businesses suffering because of consumer spending dips can take to adapt.

Hunter Stunzi, senior vice president of small business and investments at LendingTree, shared some insight for small businesses.

Lower business costs where possible

Stunzi said payroll can be the most flexible place to cut spending, especially for businesses facing restrictions about how they’re allowed to operate. He also said marketing budgets may be an easy first cut to make.

Renegotiate rent or leases

Businesses with pricey storefronts or office space may be able to renegotiate their rent or lease agreements. Companies that have seamlessly shifted to remote work may have even more bargaining power, especially if their offices sit empty or if they have the option to keep employees working remotely in the future. “You probably can get rid of that expense or seriously consider not having it for the next year,” Stunzi said.

Take out a small business loan

Many businesses across many industries are suffering, and how they’re faring can depend on how the coronavirus is affecting their community. Small businesses loans could be a good option for businesses looking for help while they rebuild, as long as their community is moving toward recovery. Businesses could also consider switching production to other products or services.

Methodology

LendingTree researchers compared average consumer spend in July relative to January 2020 — via the Opportunities Insights Economic Tracker — for all 50 states and the District of Columbia.