Consumer spending trends brought about by COVID-19
- Consumer spending trends emerging as the world exits the COVID pandemic
- Bank of America notes consumer spending is 20% higher than pre-pandemic levels
- COVID-19 triggered a significant shift in spending habits
- Experts warn of financial hardship when the Federal Reserve stimulus dries up
Consumer spending has rebounded across the world and eclipsed pre-pandemic levels in many economies, including the US, UK and China.
Increases in domestic and international spending have also restored investor confidence, with the ongoing release of pent-up demand pointing towards solid global economic growth in 2021.
The retail sector – which suffered significant damage due to stop-start COVID-19 restrictions, has returned to pre-pandemic levels in many advanced economies, including the UK and America.
Recovery has been fuelled by progressive coronavirus vaccine campaigns, which has allowed global governments to ease COVID restrictions and reopen most parts of the economy.
After months of lockdown restrictions and stay-at-home orders, it’s no wonder that people are taking advantage of the reopening economy and spending on recreational activities and services.
However, the coronavirus pandemic has triggered behavioural shifts in consumer spending habits as we have witnessed a massive shift to online retail in the wake of the COVID-19 pandemic.
According to new research conducted by BigCommerce and PayPal, the use of digital wallets (electronic devices that store your payment details and allow you to make cashless transactions) increased by 24.5% for online purchases and 88.7% for in-store purchases.
The shift to online has also created new opportunities for businesses. Many are now exploring new channels and offering different payment options such as Apple Pay, Klarna, Amazon Pay, and Bitcoin to better the digital customer journey.
Trends in consumer banking and spending habits are changing
Although survey participants admitted that they prefer in-person shopping, almost 50% said they had discovered new products via social media. At the same time, 66.7% of respondents said they had purchased goods through their phone at least once in June.
The survey, which BigCommerce and PayPal conducted, suggests that high street retailers need to invest in omnichannel commerce to provide a more integrated customer service experience.
Increases in online spending have been further evidenced by data from Sensor Tower, revealing that spending via mobile apps surged by USD 64.9BN during the first half of 2021.
Apple and Google reaped the benefits of coronavirus lockdown restrictions, with Sensor Tower noting that the jump in mobile app spending represented a 24.8% increase year on year.
New mobile app sensation TikTok was the top-grossing non-game mobile app, with users spending approximately USD 920M on the social networking service – a 74% increase on the H1 2020.
However, while experts are confident that the accelerated shift to online channels will continue post-pandemic, it’s worth noting that consumer spending and download growth is slowing as economies reopen.
Still, while brick-and-mortar retail are bouncing back, retailers should embrace the significant shift to online and introduce marketing strategies to increase revenue opportunities.
Furthermore, with people still wary about attending in-person events amid ongoing reports of new virus variants, the migration to online is set to stay.
More consumers supporting local and independent businesses
The novel coronavirus – which spread worldwide through touch, aerosols and droplets – forced millions across the world to withdraw indoors.
Gyms, restaurants, pubs, non-essential retailers and many other businesses were forced to close their doors for months as governments tackled the spread of the virus. As a result, homes turned into offices, consumer spending slumped, and habits changed.
There has been an exodus of people from metropolitan cities such as London to leafier areas in the UK as homeowners and homebuyers seek more outdoor space after spending months indoors.
Travel restrictions have seen the global aviation industry collapse. Reduced transportation services have also led to an overall shift in spending habits, with more people choosing to stockpile and invest in home furnishings and gym equipment.
The US government advised people to avoid places where crowding was a possibility, wear face coverings and social distance to avoid catching COVID-19 which, the World Health Organisation (WHO) said has taken the lives of 3,942,233 people.
However, coronavirus vaccination campaigns have restored hope, and according to research conducted by Deloitte, new cases of the virus in America have fallen by 95% since the January 8th peak.
Health authorities have administered 2,915,585,482 COVID vaccine doses worldwide, of which 323,751,943 have been distributed.
In some countries, vaccines are also available for children aged 12 years and over, further supporting the fight against COVID-19.
With consumer spending increasing and the broader economy rebounding, experts expect a robust rebound in the services sector, with people expected to return to the skies, sporting events and festivals.
However, future spending will also be dependent on post-pandemic life, with changes in working habits expected to bring about some more permanent changes to the way people spend their money.
The coronavirus pandemic has already changed spending motivations. For example, a recent survey revealed that 42% of Americans purchased goods and services from small businesses more than pre-pandemic.
According to the survey, 60% of female participants said they had decided to purchase more from small businesses to boost the domestic economy. Meanwhile, 55% of male respondents said it was because they preferred the more intimate relationship between consumers and small businesses.
A separate study from global strategy consulting firm LEK Consulting has also revealed that US consumers are expected to spend more on electronics and streaming services and less on hospitality, cinemas, concerts and mass events post-pandemic.
Currently, service sector spending is driving economic recovery in the US, with consumers piling into their favourite restaurants, bars and entertainment venues as they did before COVID hit.
There has also been an uptick in holiday bookings in recent months, and economists expect pent-up demand for travel and recreation services to continue driving growth over H2 2021.
Although the demand for transportation services will continue to be challenged by new hybrid working models, some workplaces are reopening after the 14-month hiatus, supporting recovery in this sector.
The Conference Board expects the US economy to rebound by 9% in Q2 2021 and 6.6% over the year, while the Organisation for Economic Co-operation and Development (OECD) predicts growth of 6.9% for the United States.
Vaccinations are playing a significant role in the optimistic outlook for the US economy and consumer spending plans. According to Our World In Data, 155M Americans, or 47.2% of the adult population, have been fully vaccinated, while more than 54% have been administered one dose of a COVID-19 jab.
However, the US Center for Disease Control and Prevention (CDC) revealed that 10% of Americans have said they don’t plan to receive a COVID shot and 11% remain unsure.
Vaccine scepticism is also prevalent in other countries, with some side effects of the COVID jab proving to discourage some people from getting injected.
Consumer spending facing headwinds
Consumer spending faces some headwinds as a lack of vaccinated individuals could delay the final easing of COVID restrictions and slow down recovery.
US President Joe Biden’s coronavirus aid package and central bank stimulus are also running out and given that the US labour market is still facing significant challenges, there are fears that unemployment levels could spike post-pandemic.
According to recent data, 7.1 million fewer people were employed in the US during May than in February 2020.
Although employment levels are improving, challenges to the US workforce could cause consumer spending to suffer over the long term. Low-income households are particularly disadvantaged due to the pandemic’s disproportionate impact on this group and declining medium-wage occupations.
Low-income households are also less likely to have health insurance, especially after being made redundant, meaning they are more likely to be infected with the virus and develop complicated health conditions.
According to the latest economic reports, consumer spending was almost flat in May, rising by just 0.4% when adjusted for inflation, following an upwardly revised 0.9% jump in April.
However, Bank of America CEO Brian Moynihan offered some positive news after he told CNBC that credit and debit card transaction volumes had risen by 20% in 2021 compared to 2019, attributing the growth to stimulus checks and unemployment benefits.
Mr Moynihan also said that spending had increased across almost all areas of the economy except travel, which remained 15% below pre-pandemic levels.
Still, while the Bank of America is optimistic about consumers spending futures, the end of stimulus measures and emerging variants could reinvoke memories of more challenging times that will influence emotional, physical and financial behaviours for decades.