Weekly Grooves

Economic Optimism in America – Really?

April 3, 2020

This week, we saw a survey conducted by McKinsey about consumer sentiments during the crisis across several different countries, generations and economic statuses. The comparative data is fascinating and we wanted to view it through a behavioral lens.

Although businesses may eventually come back to life after social distancing measures lift, it won’t happen all at once. It is also unlikely that consumer spending, the largest contributor to US economic activity, will bounce back immediately. Part of that is due to a decline in incomes, especially for workers who have been furloughed or laid off.

But there’s a psychological impact, too, said Elena Duggar, Chair of Moody’s Macroeconomic Board. The coronavirus pandemic has already disrupted human behavior in dramatic ways, ranging from social distancing to panic-buying toilet paper. Consumers will probably be wary of making big purchases even when the economy begins to come back to life. They’re unlikely to suddenly return to their pre-coronavirus levels of spending, Duggar said.

Finally, spending that would have taken place in the second quarter isn’t necessarily going to be made up later in the year. Travelers whose spring break trips were canceled are probably not going to take two summer vacations. Consumers are not going to eat double the meals at restaurants, or go to twice as many movies later in the year, simply because they missed out on those things in the spring.

 

Links

Article that caught our attention: McKinsey & Company “Consumer Sentiment During the Coronavirus Crisis”: https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/survey-us-consumer-sentiment-during-the-coronavirus-crisis

How fast can the US economy bounce back? It depends on the virus: https://presstories.com/2020/04/03/how-fast-can-the-us-economy-bounce-back-it-depends-on-the-virus-2/

The “Ostrich Effect” And The Relationship Between The Liquidity And The Yields Of Financial Assets: https://dqydj.com/ostrich-effect-ignore-negative-financials/

“The ‘Ostrich Effect’: Selective Attention to Information about Investments,” by Niklas Karlsson, George Loewenstein and Duane Seppi: https://www.researchgate.net/publication/226770945_The_Ostrich_Effect_Selective_Attention_to_Information

Common Biases & Heuristics: https://docs.google.com/document/d/1XHpBr0VFcaT8wIUpr-9zMIb79dFMgOVFRxIZRybiftI/edit#