Consumer behavior and consumption trends are changing. COVID-19 has forced households to stay at home. Therefore, the only way households connect themselves with the outside world is through the Internet.
Forbes suggested that COVID-19 has accelerated the growth of e-commerce about 4 to 6 years. For example, Amazon, one of the best players within e-commerce has blasted a high market value to over $1.5 trillion since COVID-19 outbreak. This reflects the massive use of online shopping by individuals during the isolation period. Furthermore, consumers today do not prefer early consumption to later consumption as they used to. It is mentioned that the savings rate in the US has hit its highest record since World War II. 41% of people decreased their spending and increased their savings while 23% of customers who originally chose to consume luxury goods turned to consume necessities instead. This change of purchasing behavior is a big turning point for the US as nearly 40% of the US’s GDP is composed of US citizens’ consumption.
Effects of change of consumption patterns in the US
As consumption decreases and saving increases, aggregate demand will decrease. The real GDP eventually decreases, which leads to recession. The general negative expectation of firms’ future profit, workers’ income, and households’ investment return leads to an economic great depression.
The effectiveness of what the Federal Reserve (FED) has previously implemented, namely the expansionary monetary policy, was low. This was because even though commercial banks lower their interest rate, no firms or households are willing to borrow money to invest or consume goods or services.
Two possible solutions to deal with the change in consumption pattern
The US can adopt an expansionary fiscal policy by reducing tax and increasing government spending. Likewise, the government can invest in research and development on high value-added industries so as to increase their productivity and reduce the prices of the high value-added products or services to attract more consumers.