I say so because there are at least three analytically distinct groups, although of course there is some overlap between them.
Group one is those who kept their jobs this year but cut their spending because of formal lockdowns or for fear of catching the virus when the pubs, restaurants and gyms were open. These have seen their savings soar this year.
Group two are those who have lost their jobs or seen their hours reduced, or who are about to do so. Next week’s official labour market data are likely to show that almost a million people have lost their jobs in the past 12 months and that total hours worked are down 12 per cent in that time. And the numbers are likely to rise: the Office for Budget Responsibility (OBR) expects the unemployment rate to climb from 4.8 per cent now to 7.5 per cent in the spring.
Group three are those living on their savings. These have suffered not just lower returns on their cash – with little prospect of this changing soon – but also a negative wealth effect: in real terms, the All-Share index is not just below its 2013-19 average, but also below its 2007 level.
What we have here, then, is one group which has potentially huge pent-up demand and the wherewithal to spend. It could unleash a consumer boom next year if the roll-out of the vaccine does indeed kill Covid-19 as an economic threat. But we have two groups with reason to continue to rein in their spending – and one of these groups is increasing in number.
Aggregate data suggest that group one is the biggest. The ONS reports that the household savings ratio soared to a record high in the second quarter, as we saved 28.1 per cent of our disposable income. Although this ratio will have dropped since then, it is likely to post a record high for the year as a whole.
This doesn.t however, guarantee that spending will boom next year. There’s a huge uncertainty here, even leaving aside the question of when we’ll be able to return to normal. Have we fallen into more frugal habits such as buying beer to drink in friends’ garden or working out to Youtube rather than going to the gym? Or is the lockdown having a Joni Mitchell effect: “you don’t know what you’ve got til its gone”? If so we’ll celebrate our release by spending even more than we used to in pubs and restaurants.
This isn’t the only uncertainty. There are also questions about the size of the negative wealth effect. Academic research has found mixed evidence on these. But this could be because equity returns have been volatile, and our responses to any volatile variable tends to be weak. But with share prices significantly below longer-term averages, it’s likely that they now contain more signal relative to noise and so will elicit more than usual restraint in consumption.
None of this is to deny that consumer spending will bounce back next year: it almost certainly will do so. The magnitude of the bounce is, however, very much open to doubt.
