Consumer spending is a primary driver of the U.S. economy. It comprises 70 percent of the nation’s Gross Domestic Product.
The Commerce Department reported last month that personal consumption spending declined 7.5 percent in March. That was the sharpest monthly decline since 1959 and that is after only half of the month was deeply impacted by the COVID-19 virus and economic shutdowns.
April’s consumer spending is expected to be down even more, based on Friday’s report that non-farm payrolls fell by 20.5 million in April and the jobless rate rose to 14.7 percent.
We do not yet have April’s unemployment rate for West Virginia, but Brian Lego, Research Assistant Professor at WVU’s Bureau of Business and Economic Research, has done some back-of-the-napkin calculating. He says the state’s jobless rate could rise to 18 or 19 percent.
Yes, those who have been laid off or furloughed qualify for enhanced and extended unemployment benefits. In some cases, the benefits will be equal to or even greater than the individual’s salary.
However, losing a job, even if it is only for a short period of time, can have devastating financial and emotional affects. Their consumer confidence has been undermined by the experience, and it may stay that way for a while.
Workers are starting to be called back as businesses slowly reopen. However, it is unlikely that West Virginia’s economy will return to pre-pandemic levels any time soon. Consumers have been shaken by the ordeal and are less optimistic, according to the Conference Board, which surveys business conditions.
“This could have repercussions for spending as the recovery takes hold,” the Board reports. “The uncertainty of economic effects of COVID-19 will likely cause expectations to fluctuate in the months ahead.”
This will likely be particularly true for West Virginians, many of whom do not have a lot of disposable income or live paycheck to paycheck.
The median household income in West Virginia is around $50,000. That is among the lowest in the nation and about $13,000 below the national average.
Most of us must plan, save, and borrow before we make a sizable purchase. On smaller items, we ask ourselves, “Do I really need that?” When we are less confident about our economic future, the answer more often is “no.”
The economic recovery in West Virginia, and the rest of the country, will depend upon not only the course of the virus, but also the confidence of consumers as they emerge from stay-at-home and safer-at-home orders.
Governments can plan for strategically executed re-openings, but the ability of consumers to again feel confident about their finances and their future is much more nebulous.