A key forecasting question in this pandemic recession is whether and when consumers will resume their buying activities. Consumer spending represents over two-thirds of US GDP and similar proportions of most developed countries’ economies. So for the US economy to recover quickly from the 4.8% annualized drop in real GDP in Q1 2020 and projected declines of 15% to 20% in Q2, consumers would need to go shopping as soon as restaurants, retail stores, and service providers are allowed to reopen. And a rapid economic recovery is critical to a rebound in the US tech market.

Unfortunately, available evidence does not suggest that this will happen:

  • In China, the lifting of quarantines and lockdowns as the number of coronavirus cases dropped has led to a resumption of manufacturing activity, but consumer spending still remains well below prior levels (see The New York Times article, China’s Factories Are Back. Its Consumers Aren’t, and the Associated Press report, China reports rising industrial production but falling consumer spending in April. The reason? Job losses during the shutdown left households focused on building savings rather than discretionary spending, and concerns about potential health exposure limited how much consumers went out shopping.
  • In the US, surveys of consumer sentiment show similar concerns about the pandemic. An Associated Press/NORC Center for Public Affairs Research poll this month found that “54% are extremely or very concerned that lifting restrictions in their area will result in more people being infected, while 29% are somewhat concerned, and 16% are not very or not at all concerned.” (See the AP-NORC write-up on the poll, Many Are Wary of Re-Opening.) Financial worries also play a role in consumer caution. A poll from The New York Times conducted by SurveyMonkey found that 40% of Americans feel that the country will experience bad times financially over the next year. This sentiment increased to 50% among those who had lost a job. One woman who was still employed and not suffering financially expressed a common sentiment: “We’re making sure that we save, because we don’t know what’s going to happen, especially with my husband’s job. We’re kind of preparing in case we later are impacted.” (See The New York Times article, As Reopening Starts, Americans Expect Recovery to Take Years.)
  • Forrester’s ConsumerVoices Market Research Online Community surveys in mid-May report that over half of Americans plan to avoid crowded stores for the next year or two, and 43% say they plan to spend less time in physical stores than they did before the pandemic. See Forrester analyst Anjali Lai’s upcoming report on what it takes for consumers to feel safe reengaging in person.

None of this should be surprising. Asking customers to risk their health to use your product or services is generally not a viable business strategy. True, some businesses, like skydiving or climbing expeditions up Mount Everest, have the risk of even death as a key part of their proposition. Cigarettes continue to sell despite proven links to cancer. People are willing to accept these risks because they are known and, to a major degree, addressable. But the risks from the coronavirus pandemic are still largely unknown for the average person. People who are infected can be symptom-free for up to 10 or 14 days yet still be contagious. Wearing masks can reduce the risk of passing the virus to and from another. Plastic shields at checkouts, spacing shoppers at six-foot intervals in checkout lines, and keeping restaurant diners six feet from others will help. Still, a significant portion of the population — especially among those older than 60 or having health issues — will remain wary of anything more than the most essential retail shopping. That fear will persist until vaccines become widely available and are safe. And even then, economic worries are likely to hold back many consumers from resuming their purchases of luxury or big-ticket items.

So even as state and local governments allow stores to reopen, consumer traffic will most likely remain well below pre-pandemic levels. Many retail businesses, restaurants, and leisure and entertainment venues will be able to operate with these reduced levels of customers. Online retail will continue to grow. But other retailers will not be able to survive the loss of 20% or 30% of potential customers who will be fearful of going out to shop. Those retailers will join the tens of thousands of small businesses that have already closed or follow major retailers like Neiman Marcus, JCPenney, and J.Crew into bankruptcy. The ripple effects of reduced consumer spending forcing retail cutbacks, lost employment, business investment, and other areas of the economy will make it likely that the pandemic recession will last well into 2021. That raises the odds that Scenario B, of a deeper and longer downturn in the US tech market, will occur.