How has COVID-19 shaped consumer behavior?

Apr 24, 2020

Sections Economics Video

Collections COVID-19 Crisis

COVID-19 has changed US consumer-spending patterns, according to Chicago Booth’s Constantine Yannelis, spurring first a surge and then a drop in spending. And though reports of a partisan split in concern over the pandemic may lead one to expect that it was mostly Democrats who stocked up early in the crisis, Yannelis says such behavior was bipartisan.

Video Transcript

I have a new study with coauthors at Columbia, Northwestern, and Denmark, and we actually show that this crisis has had profound effects on consumer behavior.

First, we saw a massive increase in consumer spending in early March, lasting up until mid-March, and this really is consistent with stockpiling. We saw increased spending on groceries, food items, as well as air travel—presumably people were leaving urban centers or trying to quickly get back to their families, anticipating shelter-in-place orders.

Now, this changed drastically towards the middle and the end of March; we saw a corresponding sharp decrease in consumer spending, and this was really quite severe in many categories. For example, restaurant spending collapsed very sharply, as did spending on public transportation, air travel, and a number of other categories. A couple of other things actually increased: for example, spending on food-delivery services.

We found that this decrease in spending was much more severe in states and cities that had issued shelter-in-place orders, consistent with this being driven by COVID-19 and the corresponding massive changes to individuals’ lifestyles.

We also explored heterogeneity by predicted political affiliation. We used geography and demographics to predict whether someone was more likely to be a Republican or a Democrat. For example, think an older rich man in West Texas, or a younger, lower-income woman in the Bay Area. According to surveys, these people are likely to have very different political affiliations, so we used that to explore differences among political partisanship—the reason being that if you look at survey evidence, it seemed that Democrats, for whatever reason, were much more concerned with this crisis. For example, according to a Pew poll in early March, twice as many Democrats as Republicans said that they were very concerned about the COVID-19 crisis.

And actually—this was very surprising to us—we actually found that Republicans were stockpiling more than Democrats in the early weeks of the crisis, which at least was not what I expected. We do see some small differences in behavior—for example, Republicans are more likely to spend at restaurants or to spend on retail, which could be consistent with them having different beliefs about the severity of the crisis, or with differential risk exposure for these groups. But by and large, even though we find differences in the magnitudes, we do find Republicans and Democrats behaving very similarly, at least in terms of their household spending portfolios.

In terms of whether this is a new normal, or whether this is just transitory behavior and people are just substituting spending from one time period to another, it’s really too early to tell from our study. So, at least from what we’re seeing, we haven’t seen any let-up in the lower spending towards the end of March. Of course, this crisis is very new, and that could change at any time, so it’s really too early to tell what the persistent effects will be.

But we’ll continue to explore them, and that’s really the advantage of having high-frequency data, that you can explore these questions in close to real time and inform the broader academic community and policy makers if things are changing.