Business as Usual: Consumers Responding to COVID

Arizona by the numbers

From a surge in online buying to adapting to new ways of shopping and dining, COVID-19 has had a profound effect on the consumer market, across the nation and in Arizona.
 
Dr. Lee McPheters, research professor of economics in the W. P. Carey School of Business at Arizona State University and director of the school’s JPMorgan Chase Economic Outlook Center, notes that Arizona consumer spending dropped by nearly a third between March 15 and April 15, when it bottomed out. Restaurants took the biggest hit with sales down by 60 percent, while grocery spending surged upward about 75 percent around the middle of March. As of mid-June, it was up about 4 to 5 percent for the year.
 
“What we are seeing is an example of ‘effective demand,’ which refers to spending driven by two factors: the ability and willingness to pay,” McPheters says. “Due to layoffs, combined with the risks from the virus, there was a massive collapse of effective demand after the middle of March. Overall consumer spending in Arizona turned up somewhat in April when the stimulus payments started, and took another jog upwards when the state began reopening.”
 
As of mid-June, McPheters says overall consumer spending was still down by double digits compared to March, about 12 percent. Despite all the photos and videos of crowded restaurants and bars, restaurant spending was still down about 40 percent at that point, due to people not fully willing to take risks amidst higher numbers of COVID-19 cases.

Supply vs. demand

One of the oldest debates in economics is whether supply creates its own demand,” says McPheters. “The reopening of business improved supply, but it still looks like that is not enough to give a big boost in demand.”

Essentially, McPheters says the overall outlook for consumer spending, with the exception of grocery stores, is weak. With unemployment claims still rising and stimulus support eventually ending, this will definitely be “a down year for retailers and restaurants in Arizona.”
 
According to Morning Consult Economic Intelligence data, Arizona consumer confidence climbed 2 points from May to June, but was still more than 20 points down from earlier in the year.
 
“The majority of people still prefer to stay at home and they don’t engage in all the activities in the same way they did before the pandemic, and that is likely to stay that way,” Sabrina Helm, Petsmart Associate Professor of Retailing & Consumer Sciences at the University of Arizona, told the Phoenix Business Journal in June. “Consumer sentiment is most likely to get even more fragile in the coming weeks, particularly in Arizona as we see infection rates are going up.”

Looking ahead

From an anecdotal perspective, that matches Holman’s perspective on consumer behaviors during coronavirus, particularly due to the work-from-home effect.
 
“In many ways, people couldn’t spend as much, because we’re not going out to dinner as often or going on vacations,” she says. “Working at home means you’re not buying shoes, clothes or even makeup, because you probably don’t have to get dressed up every day. On the other hand, when you’re sitting at home with nothing else to do, just look at what happened to Amazon sales.”
 
The way forward for consumers is rife with, yes, uncertainties and unknowns. “I think people are being prudent and addressing some hard questions,” Holman says. “How long can you last if you have to take a pay cut or you lose your job? How long can you last if you’re a small business owner and you’ve been limping along? The caveat is, of course, is this is what your situation is now. In two months it could be completely different. I’m a glass half-full type of person when it comes to the economy. We’re social creatures, and it’s natural to want to be around other people.”