How the COVID-19 economy is changing Americans’ spending habits
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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 outlook for vaccine supply?
Chief executives of America’s COVID-19 vaccine makers promised in congressional testimony to deliver the doses promised to the U.S. government by summer. The projections of confidence come after months of supply chain challenges and companies falling short of year-end projections for 2020. What changed? In part, drugmakers that normally compete are now actually helping one another. This has helped solve several supply chain issues, but not all of them.
How has the pandemic changed scientific research?
Over the past year, while some scientists turned their attention to COVID-19 and creating vaccines to fight it, most others had to pause their research — and re-imagine how to do it. Social distancing, limited lab capacity — “It’s less fun, I have to say. Like, for me the big part of the science is discussing the science with other people, getting excited about projects,” said Isabella Rauch, an immunologist at Oregon Health & Science University in Portland. Funding is also a big question for many.
What happened to all of the hazard pay essential workers were getting at the beginning of the pandemic?
Almost a year ago, when the pandemic began, essential workers were hailed as heroes. Back then, many companies gave hazard pay, an extra $2 or so per hour, for coming in to work. That quietly went away for most of them last summer. Without federal action, it’s mostly been up to local governments to create programs and mandates. They’ve helped compensate front-line workers, but they haven’t been perfect. “The solutions are small. They’re piecemeal,” said Molly Kinder at the Brookings Institution’s Metropolitan Policy Program. “You’re seeing these innovative pop-ups because we have failed overall to do something systematically.”
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