Stay at home orders and income insecurity has meant many Americans are protecting their savings right now. What will the ‘new normal’ consumer habits look like in a post coronavirus economy?
Americans Protect Savings
Due to the coronavirus pandemic, many Americans have been or are still following stay at home orders to reduce the spread of the virus. That means spending on extras like entertainment, transport and dining out, etc., has reduced.
With slashed spending, people have been saving their cash and reducing debts. This is a wise move because of future uncertainties, such as job losses, or a second wave of the virus breaking out.
Caution is logical in times of doubt, but what impact does that have on the economy? If you have some extra cash, should you save it or invest it? If you save it, does that pose a risk to the recovery of the economy, which is generally dictated by consumer spending, making up more than two-thirds of US GDP. Can the economy fix itself when spenders are not spending and squirreling their money away?
Credit Card Spending Habits
The turmoil of the U.S. coronavirus economy is causing drastic changes in consumer behavior. Credit card debt fell by the most substantial amount in 30 years, while savings rates peaked at levels of the 1980s.
Credit cards can be costly, and having debt in times when you’re not sure you’ll have an income soon is worrying people into making payments. There may be some correlation with the CARES Act stimulus payments; people spent using credit cards knowing they would get the extra income, or they just used the extra income to reduce debts.
Before the stay at home orders were in place, some say the financial status of some Americans was not strong and still recovering from the Great Recession. That being the case, more Americans will embrace frugality or a thrifty nature unless there’s strong income growth.
Looking to China
Looking at China, who are well ahead of reopening, Forbes.com [What New Consumer Habits Will Stick Post COVID-19? China Offers Clues], describe trends of consumer habits based on early post-COVID-19 data from China. These spending habits and consumer behaviors could flourish globally and offer a preview of what we can expect.
They go on to say: “Unsurprisingly, Chinese consumers are still cautious right now. A recent New York Times story noted that Chinese retail sales fell about one-sixth in March compared to a year earlier. A Morgan Stanley survey cited in The Wall Street Journal found that 69% of consumers were going out only for essentials during the last week of March, compared to 75% early in the month”.
The Future of the U.S. Economy
Normal spending habits will be slow to resume, and in some ways, a ‘new normal’ might take over led by habits picked up from lockdown. Organizations should be prepared to adapt and take full advantage of the new models.
As the U.S. begins to reopen to restart the economy, early signs show that consumers will be more cautious when it comes to spending. The shift could lead to long-lasting frugality embracing habits.
Some economists have predicted a ‘V’ shaped recovery, but that may not happen if money isn’t being plowed into the economy. Americans are not going on spending sprees, and many people have been severely strained financially.
After any sudden decline, to some extent, the ‘V’ shape will always look set to start because any growth looks sharp in comparison.
The ‘V’ shaped recovery could be more like a ‘square root’ shaped recovery; some analysts are predicting a small spike of initial bounce back, then slower growth until the coronavirus is under control.
Although it’s gloomy to think we are heading for a recession, consumer spending can only be spurred on by income growth, so it’s a common-sense approach to protect savings in times of uncertainty.
Americans Protect Savings: How have your spending habits changed? Are you more cautious? Please share your thoughts in the comments section below.