WHITE PLAINS, NY, November 15, 2021 (GLOBE NEWSWIRE) – The COVID-19 pandemic caused consumers to spend significantly less year-over-year starting in March 2020, and this trend was remarkably consistent across all regions and all demographics of the United States, according to a study of 12.4 billion consumer credit and debit transactions. The study, conducted by Argus and considered the largest of its kind, also found that consumer spending may not fully return to pre-pandemic levels before the start of 2023.
To explore the impact of the pandemic on consumer spending, Argus, a company of Verisk (VRSK), studied both credit and debit transactions in the wallets of approximately 20 million consumers, a representative sample of the entire workforce on credit cards. The study ran from January 2019 to December 2020, comparing monthly spending from year to year to control for seasonality throughout the year. The study also assessed the credit and debit transactions of these same consumers through May 2021 to better understand the dynamics of spending recovery.
The COVID-19 pandemic caused consumers to spend significantly less year over year starting in March 2020, but the remarkable finding has been the consistency of this drop in spending across the country. The timing of changes in spending levels was the same regardless of the consumer’s age, risk score or geographic region. This contrasted sharply with previous economic downturns, where spending habits differed across regions and consumer profiles. Analysis of spending patterns since the 2020 pullback also indicates that spending may not fully return to pre-pandemic levels before the start of 2023.
âWhen the country closed its doors and so many retailers, restaurants and bars closed, consumers temporarily lost many of their usual outlets,â said Linda Turnbull, associate managing director at Argus. “What’s fascinating is that the timing was so consistent even though new cases of COVID have increased in different parts of the country and for different age groups at different times.”
According to the study, overall consumer spending fell an average of 16% in March 2020 compared to March 2019. In April 2020, the year-over-year decline was more severe, at 38%. However, in May 2020 a pickup in spending was already underway, with a significant but less severe year-over-year drop in spending of 28% from 2019, a 10-point improvement from April.
âUnlike the 2008 recession, when spending dynamics differed significantly from one local economy to another, the decline in spending due to the pandemic had the same timing in every view of the data we analyzed, which is unprecedented, âsaid Turnbull. âHowever, the recovery showed unexpected trends. For example, we have found that spending by the most risky consumers recovers the fastest. Taken together, these findings have important implications for how lenders and policymakers should develop strategy. “
Data shows counterintuitive patterns for essential and non-essential spending
The study also explored how consumers managed essential versus non-essential spending during the pandemic. Essential expenses included categories such as food, medicine, gasoline and groceries. Examples of non-essential expenses included air travel, clothing stores, and furniture stores. In total, there were 877 different expenditure categories classified as essential or non-essential. Unsurprisingly, both essential and non-essential expenses fell last year. In April 2020, non-essential spending fell almost twice as much year over year (47% on average) as essential spending (down 25%). Both types of expenses began to recover in May 2020, with essential expenses recovering much faster than non-essential expenses. For all age and risk levels, essential spending had more or less fully recovered by the end of 2020. However, non-essential spending still has not recovered for many segments of the population.
Interestingly, the recovery of non-essential expenses has been faster for high-risk consumers, that is, those with lower credit scores. It’s counterintuitive; the conventional wisdom is that lower risk consumers generally have more disposable income and more credit available to spend.
âIt was a surprise to see high-risk consumers return to pre-pandemic spending levels more quickly,â Turnbull said. “We believe that this may be explained in part by the differences in the type of non-essential spending that low-risk consumers make compared to higher-risk consumers.”
For example, travel spending accounted for almost 24% of pre-pandemic spending for low-risk consumers, but only 17% of non-essential spending for higher-risk consumers. Travel was slower to recover than other forms of non-essential spending, such as restaurants and taverns. Another possible factor may be the differences in the number of transactions and the amount of spending between the two groups.
âHigh-risk consumers tend to have less cash available and therefore spend less on average on non-essentials. For example, it’s possible that going out to dinner just once more each month could bring high-risk consumers back to their pre-pandemic spending levels. This is less likely with low-risk consumers, who spent significantly more – and more often – on non-essentials before the pandemic. It’s an interesting open question that we look forward to exploring further, âcontinued Turnbull.
Analysis of the recovery of consumer spending is essential to understand the situation of consumers
The study also explored the dynamics of expense recovery.
âWhat amazed us was how quickly the recovery started,â said Lisa Bonalle-Hannan, president of Verisk Financial. âWe have been impressed with how quickly consumers and merchants have adapted to the pandemic environment, with more online shopping, increased use of mobile and contactless payment methods, and increased convenience options,â such as curbside pickup to enable more secure transactions. However, this recovery process is not complete.
Argus developed several forecasting models for non-essential expenses to estimate when expenses would reach full recovery. The most conservative models have estimated that spending by the least risky consumers – those expected to be the last to reach their pre-pandemic spending levels – will not fully recover until early 2023.
âForecasting consumer spending is a difficult challenge, especially when the environment continues to be volatile,â said Bonalle-Hannan. âWith the delta variant continuing to increase across the country, the pandemic is far from over. But it is important to distinguish between recovery after the pandemic and recovery of expenses. While the pandemic still has an impact on our daily lives, we are confident that spending is on track to achieve full health. Importantly, our study found that non-essential expenses are the key to full recovery. It is therefore a key indicator that we continue to monitor closely.
âThis analysis is extremely important for lenders, policy makers and consumers,â concluded Bonalle-Hannan. âThe information we can provide on how consumers spend and what drives these behaviors at the individual consumer level, and across the portfolio, is critical for lenders and policy makers to better understand the condition of consumers in these areas. hard times. This study also suggests several ways in which issuers can interact more effectively with their customers and prospects. With better understanding and deeper knowledge, lenders will be in a better position to help consumers across the country weather the unprecedented storm of the COVID pandemic. “
For more information on this Argus study, please visit argusinformation.com/contact.
About Verisk Financial Argus
Argus, a Verisk Company (VRSK), is a leading provider of information, decision support solutions and advisory services to financial institutions in the global business ecosystem. Our clients include more than 50 major financial organizations, regulators, payment providers, merchants, and the US, Canadian and international media. Argus is the leading source of segment-level portfolio management benchmarking data, analytics, models and advisory services. We maximize the delivery of value to clients by combining proprietary data sets, advanced software and analysis tools, domain expertise and our unique results-driven approach. Customers around the world use our services for tailor-made data management solutions that include business intelligence platforms, profile views, mobile data solutions, enterprise database services and scoring algorithms. from fraud risks to marketing, fraud and risk mitigation. To learn more, visit argusinformation.com.