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Consumers and the Economy

Dr. David Kohl, Professor Emeritus Agricultural and Applied Economics, Virginia Tech University

During a recent webcast, a listener asked, “Are we officially in a recession?” Typically, the government will wait until the U.S. has two consecutive quarters of negative growth before making an official recession announcement. However, one government agency has already announced a recession.

It is my assumption that with the negative growth, high unemployment and the consumer demand shocks experienced in the service-based economy, only time will tell if negative economic growth will continue. 

Will the recession be v-shaped like the Great Recession of 2008 and 2009? The answer is most likely not. The shape of the recession could resemble a Nike swoosh symbol with some jagged edges, as a recovery could be unsettled with further economic and health headlines. Next, the size of the swoosh symbol could be on a size-six shoe, size-18 shoe, or larger. The depth and breadth of the recession will be directly related to consumer demand and consumer confidence.

The consumer of the future will reside in four different segments. The minimalist will be one who has lost income and wealth while receiving minimal stimulus and unemployment payments. These individuals will go “back to the basics” and represent all demographics ranging from Generation Z to the veteran generation. Their pride and self-esteem will be based upon survival, similar to the generations of the Great Depression or during other periods of economic hardship.

Next, will be the frugal group. These individuals will live within their modified means of income and wealth. They will enjoy selective, larger purchases and experiences within their budgets. These individuals will live within their budgets and be receptive to personal and financial management education and the implementation of that education. They will spend at a level about 75% of their pre-COVID-19 expenditures.

The next group of consumers are the carefree spenders. Pent up with energy, stimulus checks and unemployment assistance, they will hit the ground running early in the summer months of 2020. However, in late summer and fall, they may hit the proverbial wall as a result of a loss of unemployment or a reduction in paychecks. This group will most prominently represent the jagged edges of the Nike swoosh-like recovery.

Finally, the alpha spender and investor group, while losing some income and wealth, is able to coast through a recession. They will align with selected, discounted economic opportunities. Personal spending habits of this group will resume if the health side of the equation presents a reasonable level of risk.

As owners and managers of businesses, acknowledge that in light of constantly changing health and economic environments, being able to align products and services to these groups of consumers will be the future for the next couple of years.

Budgeting & Business
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