It’s your turn, consumer

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Mass unemployment and rising stock markets

More than 30 million people in the United States have been made unemployed since the coronavirus outbreak. Companies are reporting sharp declines in profits or even losses. The economy will contract sharply in the second quarter. And the stock markets? They’re rising. However, the NASDAQ, where all major US technology funds are listed, defies description. In the middle of this crisis, this index is simply in the plus for the year.

A glorious recovery?

The reason for this stock market optimism is easy to find. As always, the stock market is ahead of the real economy. Substantial contraction? Doesn’t matter. It’s about the state of the economy in six to twelve months. And by then, at least the beginning of a recovery from this severe economic malaise is expected. Given the huge financial injections from governments and central banks into the economies worldwide, that is certainly not a bolted assumption. Still, you can take a horse to the water, but not force it to drink. And that horse, that’s the consumer.

The consumer has to do it

Because only when consumers regain confidence in the future and start spending again as they did before the crisis is a serious economic recovery possible. No less than 70 percent of the world’s largest economy – that of the United States – consists of private consumption. And in the rest of the western world that is not much different. Chinese consumers are also increasingly asserting themselves.

Recovery is not self-evident

And a recovery to old consumption habits is not easy. For example, recent figures show that consumer confidence in both the European Union and the United States has completely disappeared. The consumer confidence index in the United States even dropped to 86 points in April, a drop of almost 30 percent compared to March. It was not only consumer confidence that fell sharply. Consumers also put this lack of confidence into practice. Spending fell by 8.7 percent, the largest decline since the Second World War.

No buffers

When many people lose their jobs and the rest are afraid of the same thing, such a collapsed spending pattern doesn’t seem so strange. Bear in mind that half of Americans do not have any savings. So there are hardly any buffers to absorb a little misfortune. Spending on travel, catering, leisure and other less essential things then soon comes under pressure. The government therefore tries to support its citizens with stimulus cheques of 1200 dollars per person, rising to 3400 dollars per family of four. 

The American saves

However, the money has hardly been spent so far. Credit card companies report a large decrease in the use of credit cards. The American appears to be doing something he hasn’t done for a long time. He has started saving. Savings seem to rise to levels not shown for a long time. On the one hand understandable and sensible. On the other hand, the American economy runs on the exuberant spending pattern of the average consumer. As long as those expenditures do not recover, there can be no serious recovery of the economy.

Psychological consequences

And we’ll have to wait and see. Because this crisis has not only economic but also psychological consequences. The question is whether the many over-65s – accounting for 20 percent of all expenditures – will ever return to their “normal” spending pattern. Will they travel and visit restaurants as before? And museums? Just the question. And will life ever be the same as it used to be? China is a good example. Consumers are allowed to do almost anything there again, but remain very cautious in their consumption behaviour. Something that foreign multinationals active in the country in particular unanimously agree.

Not less, but different

By the way, it is not said that the spending pattern as a whole will decrease. In any case, it will change in composition. A process that had been going on for years – the digitization of society – has gained momentum. Online shopping, having meals delivered, meeting remotely and making fewer unnecessary journeys, it could well be permanent. According to administrators of large technology companies, digital development has accelerated as a result of the crisis. What would normally have taken two years now happened in two weeks. Something for investors to take into account.

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