As the virus goes, so goes the economy.
This seems obvious, except that some national and state leaders have framed the issue another way, as a choice between fighting the novel coronavirus or reviving business and jobs. In fact, the economy won’t recover while COVID-19 is spreading rampantly, and there’s already evidence of that in Dallas.
Consumer spending, the economy’s main driver, was recovering pretty steadily after bottoming out in mid-April. But in mid-June, as COVID cases were spiking in Dallas and beyond, consumers turned cautious and pulled back spending, according to an economic tracker from Opportunity Insights, a team of researchers based at Harvard University.
The tracker uses recent data from private companies, including credit card processors and payroll firms, to capture trends earlier than traditional sources. And it finds that some sectors are still reeling.
In Dallas County, as of July 12, consumer spending on transportation was down 57% compared with January levels, the tracker shows. That helps explain the deep job cuts and buyouts under way at American Airlines and Southwest Airlines, two hometown giants.
Entertainment spending was down 51% in Dallas, and spending on restaurants and hotels was off almost 39%. The declines are several percentage points worse than national figures and statewide averages.
How to dig out of this hole?
Tamp down the virus, at least enough that consumers will feel it’s safe to reengage. Until then, many won’t be going to restaurants and hair salons or taking airplane flights.
That’s a key conclusion from a study released last month by researchers at Opportunity Insights: “In the long-term, the only way to drive economic recovery is to invest in public health efforts that will restore consumer confidence and spending,” they wrote.
In early June, the top quartile of earners had cut spending by $1.4 billion a day, over 10 times more than the spending cuts by the lowest quartile of earners. Of course, high-earners have a lot more discretionary income and the economy feels it when they hold back.
While families continued to pay for swimming pools and landscape services, they largely cut out restaurants, airlines and beauty shops.
“The reduction in spending by the rich was driven primarily by health concerns rather than a reduction in income or wealth,” the study said.
Vivian Ho, an economist at Rice University, said elected leaders want to control the pandemic to save lives, and there’s nothing wrong with that.
“But they haven’t said, ‘This is the way to bring back the economy,’” Ho said. “And people just don’t get it.”
The pandemic economy looks a lot different than previous recessions, including in 2008. In the past, consumers cut back on buying cars, electronics, home items — a broad array of durable and non-durable goods — and their spending on services held up well.
During the pandemic, cuts in service spending are dominant. From peak to trough, services accounted for two-thirds of the decline in total consumer spending, the study found.
High-income families, in particular, pulled back on services that required personal interaction. Ho said they’re the people who support the symphony and ballet, take vacations to Europe, contribute to charitable galas and buy season tickets to sports teams.
“You can’t just tell them to go out,” Ho said. “We could get back a good portion of that spending if we would drive the virus out of the economy.”
Another economist put it this way: “They don’t need the governor to tell them to stay home,” said Bernard “Bud” Weinstein of Southern Methodist University. “We should be focused on flattening the curve and limiting the spread of the virus, because that’s a prerequisite to any economic recovery.”
Oliver Wyman, a consulting firm, has been tracking consumer attitudes about the pandemic since mid-April. It created a shopping confidence index to gauge changes in sentiment, and it plots those numbers in a chart with new COVID-19 cases.
The correlation is clear and strong. After the lockdown, while new cases were relatively flat, the index rose steadily and peaked in early June. As COVID-19 cases began to rise, the index started to retreat and continued to slide through mid-July. By that benchmark, confidence declined about 10% in five weeks.
“That’s very much connected with the increase in [COVID] cases,” said Beth Costa, a partner in Oliver Wyman’s payments and retail banking practice.
The firm’s surveys ask about “the turning point” that would give shoppers the confidence to visit physical stores again. Three answers keep leading the pack, suggesting a consensus, she said.
People want to see a consistent decline in new cases, a medicine to cure the disease and widespread wearing of masks, according to the surveys.
Those responses imply that companies can move the needle only so much by investing in cleaning supplies, plastic barriers and other protocols. Airlines, hotels and restaurants have been committed to such efforts.
“They’re all trying to figure out how to be safe, and that’s necessary — but it’s not sufficient,” Costa said. “Consumers have to feel there isn’t a threat.”
She said the firm has not surveyed shoppers in Europe but plans to do so soon. Many countries have reduced COVID spread and limited new cases, and experts want to know whether that has spurred a resurgence in consumer confidence and spending.
Costa has heard anecdotes about people returning to restaurants and shops in Italy. Others mentioned consumers in Taiwan and China getting back to a new normal. Ho cited a top health leader in Canada saying she was comfortable enough to return to her favorite restaurant.
“That’s not anything a public health official in the U.S. can say right now,” Ho said.
