The post- (or mid-) pandemic economic recovery isn’t going quite as hoped. According to a recent New York Times article, income earners in the top 25% (as measured through zip codes) – or wealthier population – are slow to return to anything near pre-COVID spending levels. Put another way, thus far the rich have changed their spending habits. We wonder whether this change is economic (loss of income, savings, jobs and the like), a greater move to online, or a mindshift in priorities. Or a combination.
When the pandemic hit the United States, and particularly New York, hard in March/April 2020, life came to a virtual standstill. Consumer spending plummeted, not surprisingly as stores, salons, restaurants, travel, etc shuttered. According to the New York Times, the largest decline was for neighborhoods with income in the upper 25%, which recorded a plunge of nearly 40%.
As states began reopening in May (and as U.S. stimulus checks arrived) spending began to rebound. But not all neighborhoods or economic groups responded equally. The poorest areas are nearly back to pre-pandemic spending. That’s not surprising as a larger portion of their money goes to necessaries, rather than discretionary items. As the below chart from the New York Times demonstrates, the improvement in spending declines as income increases.
Change in Consumer Spending During the Pandemic
The article focuses on the trickle down effect (or lack of it) on people who depend upon the wealthy to spend mainly in person. Shopkeepers, restaurants, salons, employees who depend upon tips, for example, lost virtually all income during the shutdown. If, as seems to be the case, high earners don’t return (combined with a lack of tourists) to these businesses, the economic crisis for these workers persists if not worsens. We also note that, at least for wealthier NYC neighborhoods, many of their residents fled the City during the pandemic and are unlikely to return before summer’s end, exacerbating the situation.
There remain the larger issues of whether and when these consumers will return. Are people reconsidering whether they need that new handbag, dress, toy, whatever? Perhaps the risk of going to a populated store outweighs the need to shop. Similarly, dining out may not be a pleasure when you’re following distancing and masking guidelines. It may be awhile, if at all, until confidence in public activity returns.
At the same time, the NYTimes also published a piece about people “stress-buying diamond bracelets.” Auction houses report strong activity in their online sales for jewelry. And, as we have written, high end luxury resellers profited during the pandemic.
This may seem contradictory to the first article. However, these gems are selling online. It would appear that the wealthy are spending, but doing it from the comfort and safety of their homes. In other words, this could be the continuing shift to web-based commerce and spending, particularly for those in higher income levels.
Let us hear your thoughts.