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Has consumption changed forever?

By Harriet Smith, Economist

Article

  • Article
  • COVID-19 lockdowns restricted the consumption of some ‘stuff’ while sparking a boom for many durable goods…
  • …as well as totally transforming our daily lives, shifting behaviours, habits and values
  • Now, more than three years later, has the pandemic left a permanent mark on consumption patterns?

Post-COVID-19 consumption patterns and behaviours

Three years on, let’s take stock

The pandemic had an unprecedented impact on consumption patterns. With everything closed, no amount of help from government support schemes could prevent global consumption from collapsing, and it did.

Now, over three years later, despite widely recovering to 2019 levels, real consumer spending in the majority of economies remains below pre-pandemic trend – that is, where we might have expected it to be, if it had continued to grow at a similar rate as before. Of course, the pandemic hasn’t been the only factor behind this. Soaring inflation has squeezed real incomes, especially for lower-income groups, and the outlook for global consumption lies vulnerable.

64%
UK households have made spending cuts (YouGov, February 2023)
15%
Effective annual inflation rate for UK households in the lowest income group at end of 2022 (ONS)

But it’s not just about how much people spend. We’ve seen shifts in what they choose to spend it on, too.

The rise of services

Since emerging from lockdowns, most economies have seen a rotation in spending from goods to services. What is striking is that even some time later, spending on services continues to grow. Do consumers now value experiences more than material goods? Before the pandemic, survey evidence pointed to preference for experiences over buying ‘stuff’, so perhaps COVID-19 has been a catalyst accelerating a pre-existing shift.

Yet the services recovery has been uneven: some sectors have rebounded more strongly, while others still lag behind. As seen in US data, people have been keen to resume holidaying again and have flurried back to restaurants, but not everyone has returned to the hairdressers. Some recreational activates haven’t fully recovered either, but there are some bright spots: spectator sports have seen a boost to demand and fans have been eager to attend live concerts again.

Some sectors have bounced back more strongly than others.

With remote working arrangements widely continuing, passenger numbers on public transportation, such as buses and trains, might be settling at a lower level. Meanwhile, a strong recovery in business travel looks set to continue, with in-person business interactions remaining important.

Some goods still in demand

The shift in spending from goods to services varies in extent between economies. That said, it is surprising to see – at least in the US – that demand for certain categories of physical goods that saw a spike in demand during the pandemic has held up relatively well. Americans have not eased back on buying electrical and recreational goods, for example, and while spending on homeware has softened, it nevertheless remains high compared to pre-pandemic levels.

Many factors are likely to be at force as to why, at least for now, demand for these things has not softened as much as we may have expected. One, perhaps is that housing affordability remains a challenge for many people. Despite house prices coming down post-pandemic, higher interest rates have lifted borrowing costs. As such, households may be spending more on upgrading and buying ‘stuff’ for their current home, rather than moving.

Lasting behaviour changes?

Aside from what we bought, the way in which we went about our daily lives during the pandemic changed dramatically, too. Some of these shifts appear to be sustained. It seems that a healthier lifestyle has become more important for many since emerging from lockdowns. More people are using technology for work and leisure compared to before the pandemic, and online learning looks set to remain an important aspect of post-pandemic education systems. The continued shift away from cash, too, appears to have accelerated. With structural implications for the economy, the nature of consumer spending is a key measure to track. Future data will give clarity on whether the pandemic has, indeed, changed consumption patterns and behaviour forever.

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The following analyst(s), who is(are) primarily responsible for this document, certifies(y) that the opinion(s), views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Harriet Smith

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