The trajectory of U.S. consumer spending is likely to be dominated by the pandemic and associated economic developments well into 2021, according to Fitch Ratings. Length of the outbreak, timing of vaccine distribution, corporate activity including layoffs, and potential government stimulus are all expected to influence consumer sentiment around wealth factors and desire to spend on various categories. Fitch expects retail sales, excluding auto and gasoline, could be modestly positive in 2021 after a significantly better than expected performance of around 5% to 6% growth currently forecasted for 2020.

Retail sales ex auto and gasoline grew 6% through September 2020 despite the pandemic, as government stimulus provided somewhat of an income bridge during unemployment spikes; stable housing and equity markets also supported consumer wealth. Consumers redirected $400 billion to $500 billion from spending declines on services like travel and entertainment on goods, particularly those which align with more time spent at home. Some categories, namely apparel, accessories, jewelry and cosmetics, remain weak, likely due to lack of interest particularly given reduced social gatherings.

Fitch expects 2021 retail performance to be characterized by an unwinding of numerous 2020 factors which have caused vastly diverging trends across retail categories. Assumed continued good consumer financial health, these trends are expected to reverse as the pandemic dissipates, with many companies exiting 2021 with operating trajectories similar to pre-pandemic levels.