COVID-19

How the COVID-19 economy is changing Americans’ spending habits

David Brancaccio, Chris Farrell, Candace Manriquez Wrenn, and Erika Soderstrom May 11, 2020
Heard on: Marketplace Morning Report
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Americans won't be racing out to spend money as lockdown restrictions ease, early indicators suggest. Maddie Meyer/Getty Images
COVID-19

How the COVID-19 economy is changing Americans’ spending habits

David Brancaccio, Chris Farrell, Candace Manriquez Wrenn, and Erika Soderstrom May 11, 2020
Americans won't be racing out to spend money as lockdown restrictions ease, early indicators suggest. Maddie Meyer/Getty Images
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As states begin to gradually reopen in an attempt to restart their economies, early indicators show consumers will be cautious with their spending. That could potentially lead to a long-lasting shift in spending habits, one that embraces frugality. 

As recently as a couple of weeks ago, some economists predicted the recovery from a COVID-19-induced economic downturn would be sharp and quick. However, that might not be the case anymore. The economic damage that the coronavirus has caused to millions of consumers now might be too severe to expect Americans to go on post-lockdown spending splurges. 

Prior to COVID-19-related lockdown restrictions, the financial status of many Amercians wasn’t strong. “Incomes have been stagnant, they’ve fallen for a majority of people for several decades. I mean, the only exception are these highest earners,” said Chris Farrell, Marketplace senior economics correspondent.

Even more disturbing, “a lot of middle-, lower-income households, they never recovered financially from the Great Recession, which was a dozen years ago,” Farrell told “Marketplace Morning Report” host David Brancaccio.

Now, Americans could begin to change their spending habits in order to financially survive the economic fallout from this pandemic.

“More people are embracing frugality or thrift. Here’s the bottom line: Without really strong, healthy income growth, Americans will need to save more and spend less,” Farrell said. 

That change is already reflected in the numbers: “The personal savings rate, it has already jumped from 8% in February to more than 13% in March, and I don’t think that’s an aberration,” Farrell said.

The following is an edited transcription of the conversation.

David Brancaccio: What do you think? Was this trend expected of forced frugality?

Chris Farrell: No, I don’t think it was. Think back a couple of weeks ago: The consensus expectation on Wall Street was we were going to have a V-shaped recovery. We go down, and then when the economic lockdown is lifted up, you’re going to have all this pent up consumer demand. And people are just going to go out and start splurging. Now we realize, look, too many households, their finances have been badly strained. April’s unemployment number was stunning, of course, but it only captures a part of the damage. I mean, think about all the other workers that have had their hours reduced or pay cut, or maybe they go on temporary unpaid leave. People are not going to go out and spend money the way they typically do after a recession.

Brancaccio: But, Chris, what was the status of our savings prior to the lockdown mess?

Farrell: So incomes have been stagnant. They’ve fallen for a majority of people for several decades. I mean, the only exception are these highest earners. And probably even more disturbing, a lot of middle-, lower-income households, they never recovered financially from the Great Recession, which was a dozen years ago. So to get by during this pandemic depression, if you don’t have much in savings, you’re borrowing more. And there was this recent survey by CreditCards.com. It shows that nearly half of U.S. adults currently have credit card debt. And that’s up from 43% from a similar survey in early March. And hardest hit: millennial credit card holders.

Brancaccio: Now speaking of millennials, I mean, here we are — they’re being given a taste of what their grandparents, even great-grandparents, experienced during the Great Depression.

Farrell: That’s right. And like the grandparents or great-grandparents, more people are embracing frugality or thrift. I mean, look, here’s the bottom line: Without, you know, really strong, healthy income growth, Americans will need to save more and spend less. The personal savings rate, it has already jumped from 8% in February to more than 13% in March, and I don’t think that’s an aberration.

COVID-19 Economy FAQs

What’s the latest on the extra COVID-19 unemployment benefits?

As of now, those $600-a-week payments will stop at the end of July. For many, unemployment payments have been a lifeline, but one that is about to end, if nothing changes. The debate over whether or not to extend these benefits continues among lawmakers.

With a spike in the number of COVID-19 cases, are restaurants and bars shutting back down?

The latest jobs report shows that 4.8 million Americans went back to work in June. More than 30% of those job gains were from bars and restaurants. But those industries are in trouble again. For example, because of the steep rise in COVID-19 cases in Texas, Gov. Greg Abbott, a Republican, increased restrictions on restaurant capacities and closed bars. It’s created a logistical nightmare.

Which businesses got Paycheck Protection Program loans?

The numbers are in — well, at least in part. The federal government has released the names of companies that received loans of $150,000 or more through the Paycheck Protection Program.

Some of the companies people are surprised got loans include Kanye West’s fashion line, Yeezy, TGI Fridays and P.F. Chang’s. The companies you might not recognize, particularly some smaller businesses, were able to hire back staff or partially reopen thanks to the loans.

You can find answers to more questions on unemployment benefits and COVID-19 here.

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