Retailers are understandably wondering what consumer behavior will look like as the economy opens up again.
Will people venture back to stores and restaurants, or will they still be afraid that they could be exposed to the novel coronavirus? Will those who have tried online shopping for the first time during the early days of the pandemic decide they prefer to shop that way even when other options are available? Will product preferences be changed by people’s experience of sheltering in place at home, wearing comfortable clothes and baking their own bread?
Perhaps a more important question for retailers to consider: How many consumers will still have money to spend?
A recent study by SHRM (Society for Human Resource Management) and Oxford Economics estimates that U.S. workers had lost an estimated $1.3 trillion by late April as a result of the economic contraction caused by the COVID-19 pandemic. That amounted to an average of about $8,900 per worker.
The study’s authors state that about 20% of this $1.3 trillion figure represents lost income by people who were still employed. So job losses — significant as they are — are not the only threat to consumer spending going forward. That’s a big deal, because consumer spending is estimated to account for about 68% of U.S. gross domestic product.
“Job loss and wage reduction have cost United States workers $1.3 trillion as of late April, and this amount has surely grown in lockstep with rising unemployment,” said Dan Levine, head of Oxford Economics’ location strategies practice. “In many communities, it may take years to replace the jobs lost in a matter of weeks.”
The study also predicted that only 20% of metropolitan areas and only 11% of smaller communities will see employment return to pre-pandemic levels by the end of the year.
The study also predicts that nearly four in 10 smaller communities will not recover to pre-COVID-19 employment levels by the end of 2024.
Those results may seem pessimistic, especially after the Labor Department earlier this month released an unexpectedly positive jobs report indicating that the economy had added 2.5 million jobs in May, after having lost 20.7 million jobs in April. And while 1.5 million Americans filed for initial unemployment benefits in the first week of June, that metric has declined steadily since mid-March.
The broader unemployment rate remains about 21.2%, though, and many are predicting that a lot of companies will be slow to rehire laid off employees, preferring to wait until their business picks up first.
That makes sense. But if companies wait to rehire, and the stimulus money stops flowing, many consumers will not have as much money to spend in retail stores. Given the importance of consumer spending, that would be bad news for the economy.