The PrimeRevenue platform processes more than $250 billion in payments annually and partners with more than 30,000 clients around the world. As such, we have unique access to a broad range of working capital data that can provide insights into global trade activity.
At the beginning of the global pandemic, trade activity in China indicated that there may be a light at the end of the tunnel for the first region to be impacted by COVID-19. As the effects (both human and economic) began to sweep across Europe, our data began to provide a clearer timeline into how other regions could expect the economic implications of the coronavirus to play out.
There is tremendous uncertainty in the U.S. economy right now – a looming election, social unrest, and the global pandemic are just a few of the factors impacting life in the U.S. We are diligently analyzing trade data to provide insights into how these factors affect the economy and what we can predict moving forward. What we’ve found are green shoots of improvement that prompt cautious optimism.
Our data indicates that there is hope for some level of economic recovery moving through the rest of the year. While there is still a long way to go, I am optimistic about the future. Multiple economic indicators currently suggest economic recovery in the U.S. is gaining momentum – and our data points to the same conclusion.
Consumer Discretionary Bounces Back as Volumes Exceed 2019 Levels
Our U.S. programs largely consist of companies in the consumer discretionary and consumer staples sectors. These two sectors are arguably the most telling as they directly relate to the broader economy, which is deeply impacted by consumer spending habits (i.e. what they want vs. what they need).
The consumer discretionary sector is a wide umbrella that includes consumer durables and retailing. This sector is particularly indicative of the broader economy because consumer spending directly impacts it. In short, if there is no disposable income for consumers to spend, companies within this sector suffer.
As a whole, this sector was strongly impacted by the pandemic as consumers tightened their wallets. Despite this, there were signs of improvement as some categories within this sector gained momentum over the summer months.
We saw the first peak in same store sale invoice uploads on April 6, approximately 4 weeks after the lockdown in the U.S. began. We attribute this spike to consumers sheltering in place and taking notice of projects on their cars or in their home.
The economic landscape meant consumers were purchasing fewer new cars and were instead opting to do repairs themselves. Similarly, DIY projects around the house became more top-of-mind. Add warm summer barbeque and picnic weather, which historically drives gas and charcoal grill sales, and home improvement retailers saw strong sales in Q2 and Q3.
Public data from several automotive after-market retailers validates our data. AutoZone reported a strong performance in their fourth quarter, with same store sales up 21.8%. In a recent press release, President and CEO of Advance Auto Parts Tom Greco shared that the company benefitted from a change in how consumers repaired and maintained their vehicles. In fact, Advance Auto Parts’ second quarter earnings report states the company saw their highest quarterly growth rate in nearly a decade, with second quarter same store sales up 7.5%.
After the first peak on April 6, invoice upload volume declined for a period of 35 days until May 11 where invoice uploads hit the lowest point for this sector at 30% below 2019 levels. We believe this decline stemmed from the spike in unemployment in the U.S. beginning the month of April and a subsequent tightening of wallets.
We saw a slight but steady increase in invoice upload volume of same store sales from May to September. On June 26, this year’s levels surpassed 2019 for the first time since lockdown began in the U.S. Between June 26 and September 2, rolling average in uploads remained consistently above 2019 levels. On September 2, rolling average of invoice uploads saw its second peak of the year, at 29% above 2019 volumes. We attribute this to the fact that unemployment rates in the U.S. are steadily decreasing and consumers are adjusting to the “new normal.”
Looking forward, we expect this sector to continue to meet pre-COVID levels. As demand for essential retail continues to surge and the automotive industry bounces back, consumer discretionary should stay within a close range of last year (given we don’t see a second severe resurgence of the virus and election uncertainty doesn’t significantly impact consumer spending).
Continued Growth in Consumer Staples Remains Strong
Consumer staples, which includes food retailing and food & beverage, did not see the sudden decline that other sectors experienced as companies within this sector sell items that are staples for most Americans. In fact, the consumer staples sector has been exceptionally resilient through the heart of the lockdown and is consistently meeting 2019 levels.
Upload volume in Q3 within this sector was only less than quarter of a percent lower than the same period last year – a significant feat considering the volatility experienced by other sectors.
The sector’s resilience is expected as this category is largely comprised of food and beverage companies. Frozen foods and consumer packaged goods companies saw particularly strong performance as consumers stocked up their freezers at the beginning of the pandemic and opted for quick and easy meals once cooking fatigue set in.
For Conagra Food Brands, one of our award-winning programs, these behaviors have translated into strong financial growth. For its first quarter ending September 30, organic net sales increased 15% with significant growth in each of the company’s three retail segments.
Given this sector’s Q3 performance, we can reasonably expect stability through the rest of 2020.
While it’s clear the road to recovery will be long, there is hope in the fact that many businesses are at least keeping pace with 2019 metrics. While many businesses would not normally celebrate merely breaking even with last year, that’s considered a win in today’s unprecedented climate.
The trade activity we see across our platform gives us a unique, data-driven perspective into where exactly that recovery is taking root and to what extent. We will continue monitoring data as is evolves to provide new insights into working capital trends and global trade activity. Follow us on LinkedIn to stay up to date with our latest reports.
