Furniture is the new pandemic spoil
The impact of record-high daily increases in Covid-19 in Europe and the US on consumer demand is like an accident waiting to happen. Already there are signs of “hesitancy” appearing in the US economy and retail sector. South African spenders appear immune, for now. Arguably the biggest worry is a second wave of the coronavirus in the developed world and the devastating impact this could have on global economic prospects. Based on the record number of daily cases in developed countries over the past month, that scenario may well be in the making.
The first contributor to economic growth likely to be hit by the curfews and lockdowns will be the consumer – potentially putting paid to a sharp bounce-back in consumer spending with a sentiment buoyed by the lifting of lockdowns and the belief that the worst was over.
But it is not. Global research company Counterpoint’s Peter Richardson says the second wave is turning out to be more destructive in Europe, with the top five countries in terms of total cases (Tuesday’s figures) – Russia, Spain, France, UK and Italy – all reporting record daily new cases over the past month. The US remains streets ahead, with 8,216,723 cases recorded on Tuesday by Bloomberg.
Richardson adds that, as a result of this worrying turn, lockdowns and shutdowns are back in many countries, with France, Germany and Italy announcing curfews or closures of bars and restaurants, and the UK applying levels of restrictions. However, “even at its highest level, it is still not as strict a lockdown as seen in March and April”.
In the US, cases are at their highest level since the first peak in late July. Last week new cases hit nearly 70,000 a day – a trajectory of grave concern given that the northern hemisphere is heading into winter.
South Africa is fortunate in that numbers have levelled out and not shown any signs of a second wave, with daily cases less than 1,500 versus the almost 14,000 peak in July.
Retail sales have steadily regained the ground lost in April when they halved from the previous year’s level. On a month-onmonth and seasonally adjusted basis, they rose 4% and recovered 16.7% in the three months to end-August – highlighting the gradual recovery in consumer demand.
According to Trading Economics, sales fell less for food, beverages and tobacco (-5% vs -17.4% in July); general dealers (-1.5% vs -2.8%); textiles, clothing, footwear and leather goods (-10.2% vs -13.3%); and all other retailers (-32.3% vs -39.3%).
Signs of the dampening effect the coronavirus cases are having on US consumer demand is already being picked up in the Oxford Economics US Recovery Tracker, as rising “hesitantly” in October.
Early signs of consumption vulnerability could be a precursor to an about-turn in the recent promising pickup in US retail sales, which rose at their fastest in September in three months.
A more upbeat situation is visible in China, where strict measures to contain any localised breakouts are benefiting consumer demand. Although latest headline growth figures came in below expectations, they showed a nascent turnaround in retail spending after demand initially lagged behind the rebound in industrial activity.
UBS chief economist Paul Donovan believes the fact that Chinese retail sales growth came in near the top of the forecast range shows that global demand is helping China’s economy, alongside some increase in domestic demand. Let’s hope domestic demand becomes robust enough to forestall a probable slowdown in developed market demand in the closing months.
Against these divergent retail experiences, there is one industry that appears to be benefiting from coronavirus and lockdowns. In his commentary: Are you sitting comfortably? Donovan explores why the global production of furniture has risen so significantly in recent months, pointing out that furniture manufacturers have achieved production levels near or above pre-pandemic levels.
His explanation: “Some of it is psychology. Weeks with little to do except watch home-makeover programmes encouraged people to redecorate. The threat of future lockdowns means people want to make their homes more comfortable.”
It may also be a structural shift. “People expect to work from home more in the future. Inevitably, people want to invest in furniture that will make it easier to do that.”
He says some consumers who have saved during lockdowns because they haven’t been paying for haircuts and restaurant meals have been in a position to make more expensive purchases – like a new lamp or a chair.