When this lockdown is over, what will you do? If you’re like me, you’ll spend more on those things the pandemic has deprived us of, such as holidays, pubs and eating out. This does not, however, ensure that consumer spending will return to normal.
For one thing, not all of us have the wherewithal to go on a spending spree. Yes, the ONS reports that households saved a record proportion of their incomes last year because the pandemic prevented us going to pubs, restaurants and some retailers. But this aggregate number disguises two facts. One is that holders of UK shares have suffered a cut in their wealth since the pandemic. The other is that unemployment will rise this year. Hundreds of thousands of people will use the savings built up last year not to spend more but merely to see themselves through the tough time to come.
What’s more, it’s possible that the pandemic has permanently changed our spending habits. It’s likely that some of us will continue to work from home at least some of the time. This means spending on commuting will be permanently lower than it used to be: in the third quarter of last year, spending on transport was down 29 per cent on a year ago. It also means we’ll continue to spend less on snacks from near the office: Greggs, one of the great high street successes of recent years, recently announced a big loss and lots of redundancies.
We might also have got into the habit of eating and drinking at home rather than in pubs and restaurants. Official figures show that in the third-quarter spending in restaurants and hotels was 25.6 per cent lower than a year ago, despite a cut in VAT and the Eat Out to Help Out scheme. Sure, a lot of this fall was because many of us were scared of Covid. But it might also reflect a permanent change of habit.
And then there’s the danger of positive feedback effects. I’m not thinking here merely of the standard multiplier: as unemployment rises, people cut their spending and so jeopardise other people’s jobs and spending. There are two other problems. One is that, as Cornell University’s Robert Frank has shown, our spending is influenced by those around us – which means that if other people spend less so will we. Another is that shop closures can be infectious. When a few shops have shut, fewer people visit the high street (either because they’ve less reason to or just because boarded-up shops are depressing), which means less footfall for the survivors.
We must distinguish between the rate of change of spending and its level. Later this year, spending might grow strongly. But it could nevertheless remain below pre-pandemic levels for some time. Latest official figures show that, in the third quarter, aggregate consumer spending was 10.1 per cent down from a year ago. It could take three or four years to regain 2019’s level.
And even when it does so, the pattern of spending might well be very different from what it used to be, perhaps to the detriment of city-centre retailers, pubs and restaurants. Just because spending will rise this year does not therefore mean that consumer stocks are safe bets. They’re not.