Ag Economy - Weekly

The Ag Globe Trotter

Dr. Dave M. Kohl

Welcome to the weekly edition of The Ag Globe Trotter  by Dr. Dave Kohl.

Post-Pandemic Consumer Behavior

This black swan event continues to navigate the globe causing health and economic havoc as countries, states and local regions now unveil various plans to reemerge. Some of the leading economists say the recovery will be v-shaped, similar to the Great Recession in 2008 and 2009 with a quick comebackHowever, predict the economic recovery could be longer, shaped more like the Nike swoosh symbol. The question then becomes, is the Nike swoosh on a size-six shoe or a size-18 shoe? 

The next round of impactwhich will play out over the summer and fallwill have some interesting unintended consequences. Personal and business stimulus checks and unemployment compensation will begin to run outWill local, state and federal workers go back to work and, if so, what will they be paid? The same can be said for businesses and corporations. Expect reduced compensation in many businesses and institutions as the U.S. and the world ramp up post-pandemic. Unfortunately, some individuals may never return to their jobs as companies go out of business or restructure to position for the new economy. 

In late 2020, early 2021 and possibly in 2023, a spinoff of COVID-19 will reemerge in the U.S. and around the globe. Social uncertainty will be heightened due to the mediaelection cycles and drama over the best solutions post-pandemic, or during a reemerging pandemic. 

I envision four types of consumers that will be the mainstay of consumption-based economies, not only in the United States, but in other rich nations as well. 

The minimalist will be the back to the basics consumer with minimal extra purchases for high-end items. These individuals or families may have lost their jobs otheiwork positions were eliminated because of restrictions created by potential health risks. Losses in the stock market and a reduction of real estate equity may also impact their behavior. This group of consumers will range from the aging baby boomers through most generations. For this segment of consumers, pride and esteem will come from minimizing expenses and going back to the simple things in life, without spending much money. 

The frugal will be the next classification of consumer behavior. Their income and wealth may have been reducedLess income and health security may place this group of consumers into a conservative mode for both small and large purchases. They will follow a budget and prioritize spending. The frugal consumers will take pride in living within their means while enjoying selected life experiences. 

The carefree consumer on the other hand, has what I call “pogo stick syndrome” behavior. They will revert quickly to their pre-pandemic consumption habits. Initially, pent up energy and demand will lead to near normal spending and investment patterns. Income may rise back to normal; however, increased taxes at all levels may lead to less overall discretionary spending and savings. Vacations, home purchases and other large expenditures may be scaled down, and any outbreak or additional black swan events will quickly shift this group's preferences due to behavioral economics 

Alpha spender or investor is the final consumer groupThis includes those with earnings and wealth that shielded them from economic losses. They will revert to high-end purchases. Actually, these individuals and households will be able to seek opportunities at a discount. However, individuals in all other segments will be able to do this if they are prudent with their financials and align their talents with innovation and agility for the post-pandemic marketplace. 

In summary, see gradual recovery with a financially and emotionally bumpy road. Post-pandemic, people will find their aspirations and dreams are much different. Business goals will adjust as well. Over the decades, many other black swan events such as 9/11 and oil shocks were relegated to specific segments of society. Because of its depth, breadth, suddenness and ability to reoccur, COVID-19 will change the paradigm of consumer behavior, interaction, the view of the moment and the future. 

P.S. Food for Thought 

Round One: The initial economic hits were in retail, travel, airlines and discretionary spending. 

Round Two: We will see local, state and federal government budget squeezes. The manufacturing and selected technology sectors will also take a hit. 

Round Three: The construction industry, trades and possibly the U.S. and global equity markets will feel the effects of the pandemic.  

Stay tuned for future columns as we continue to examine the progression of this black swan event. 


Comments

Please send your remarks to AgGlobeTrotter@accountlist.com. I would like to know what you are thinking.

Dr. Kohl is Professor Emeritus of Agricultural Finance and Small Business Management and Entrepreneurship in the Department of Agricultural and Applied Economics at Virginia Polytechnic Institute and State University. Dr. Kohl has traveled over 8 million miles throughout his professional career and has conducted more than 6,000 workshops and seminars for agricultural groups such as bankers, Farm Credit, FSA, and regulators, as well as producer and agribusiness groups. He has published four books and over 1,300 articles on financial and business-related topics in journals, extension, and other popular publications.

© Northwest Farm Credit Services 2019