Pandemic surprise — rich people stop spending

This is my first pandemic. Yours, too, I’m guessing. So, to some extent at least, everything about it is a surprise, even though in retrospect it mostly shouldn’t be. Hindsight is crystal-clear, isn’t it?

It surprised me to learn that the biggest reason for the drop in consumer spending is that the most prosperous Americans are responsible for most of the decline.

Higher income people have more discretionary wealth available to them than do lower and middle income people. And, as a group, their job losses are proportionally fewer. The fall-off in consumer spending at the start of the pandemic crisis should have been more modest for the higher income population than for the lower and middle income populations, and the spending recovery should be greater.

In fact, current spending records show exactly the opposite is happening.

This comes from a Harvard University research program. Check it out here.

The site provides an interactive national map that presents spending information nationally and by individual state, and is also broken down by a half-dozen broad industry categories.

Businesses whose offerings lean towards fulfilling the desires of the higher income people are in for a slower recovery than those that provide for the more basic needs. Employment in those businesses will follow the same trajectory.

This could continue for a while yet. And, if the pandemic eases off for a while and then resumes, will the spending patterns repeat?

I don’t know, but it’s a good guess that they will, at least in aggregate. At the level of the individual business it could be different. Forewarned is forearmed.

Garry Herron

Chief Business & Economics Advisor

A lifelong resident of Southern California and a UCLA graduate, Garry Herron's experience with business and economics spans a first career in big business and a second career in small business. Now retired from both enterprises he volunteers his time to help others, especially students enrolled at local institutions of public higher education. He has found that combining four decades' worth of experiences in business with research on how national and global economics impact business success is key to helping college students transition from education to career.

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