Emerging From COVID-19: Consumer and Financial Institution Perspectives

July 9, 2022  |  Bill Handel

COVID-19 has had an immeasurable impact on our society – societally, technologically and most certainly economically.

During the first 13 weeks of the pandemic, there were 45.7 million initial claims for unemployment, or 3.5 million per week. To put this in perspective, during the Great Recession of 2007-2009, the average weekly total initial claims were 476,000, and the largest single week was 659,000.

Unemployment soared to 14.7 percent in April, the highest level recorded since the Great Depression in the 1930s. From February to April, total retail sales in the U.S. declined by 22 percent, again a significantly more dramatic decline than ever before. Comparatively, the worst three-month period during the Great Recession was September to December 2008, when retail sales declined by 9 percent. In addition to declining retail sales this year, auto sales fell 32 percent in March and another 23 percent in April.

These are startlingly bleak numbers. Yet May economic data is also startling – but positive. First, unemployment declined from 14.7 percent to 13.3 percent, a wholly unexpected result. Retail sales rebounded by 18 percent, double the most optimistic projection, and auto sales increased by 39 percent.

Not Out of the Woods Yet

Although there are reasons to be optimistic that we have weathered the worst of the economic storm, concerns remain. Retail sales are at only 96 percent of their prerecession high water mark, and auto sales are only at 73 percent of their prerecession levels. The Industrial Production Manufacturing Index declined by 20 percent between February and April. While it improved in May, that improvement was only 4 percent. Moreover, the massive failures of small businesses could have a lingering impact on employment in the U.S.

We may now be through the worst of this recession, which officially began in February, but the question is how quickly we emerge from it. The initial signs are promising, but what will happen in the second half of 2020 and into 2021 is unknown.

Given the likely significant decline in economic output in the second quarter, it may take some time before we get back to where we were in the fourth quarter of 2019. For example, if second quarter GDP declines 20 percent and the third quarter growth is up by 10 percent, we’d need 5 percent growth each quarter into the third quarter of 2021 to get back to where we were at the end of 2019. If that quarterly growth rate was 3 percent, we would not get back to par until the second quarter 2022.

Consumer Perspectives

Consumer sentiment will be key to economic recovery. The more consumers are optimistic about the future, the more they will drive consumer demand and economic growth. Our survey of more than 120,000 consumers across the U.S. during the pandemic illustrates the devastating impact that COVID-19 has had on the consumer psyche.

Source: Raddon Survey of Financial Institution Consumers (April/May 2020)

Of the 50 percent of respondents working remotely, three in four anticipate working remotely for the long term. While the average decline in spending by respondents was 27 percent, the decline was much greater, 42 percent, among those who lost employment. Note the overall top concern among respondents is the decline in their retirement portfolios. Among retirees, the top-rated need was a savings account paying above-average rates.

Consumer confidence has taken a big hit by the pandemic as peoples’ livelihoods have been threatened. A robust recovery will depend on an improvement in consumer sentiment.

The University of Michigan Consumer Sentiment Index., which measures consumer confidence, declined from 101 in February and now stands at 72.3 in May. While that’s better than during the Great Recession (55.3 in November 2008), it’s a dramatic decline. More concerning is that the increase from April to May was only very modest – from 71.8 to 72.3.

Financial Institution Executive Perspectives

Raddon also conducted a survey of financial institution executives to get their perspectives on the effects of COVID-19. Of the almost 200 respondents, 80 percent were in the C-suite.

Source: Raddon Survey of Financial Institution Executives (April/May 2020)

The percentage of institution respondents who indicated they are extremely concerned about COVID-19 is 30 percent, notably less than the corresponding percentage of consumers who reported being extremely concerned – 47 percent – possibly because financial institution executives continued to work. Of the 63 percent offering online chat, 5 percent began offering this service in the past three months. But, of the 13 percent of institutions offering video chat, almost half – 6 percent – began offering this service in the past six months. Almost two-thirds of financial institutions participating in the Paycheck Protection Program (PPP) indicated that demand strongly exceeded expectations. The most frequently cited impact of the pandemic is the significant decline in loan applications along with notable decline in card transactions.

Banks and Credit Unions Play a Vital Role

In our previous post on COVID-19, we cited the 10 focus areas for financial institutions in response to the pandemic. These trends are not new; the pandemic has accelerated their impact on the industry. Just as COVID-19 hastened our movement into recession, it’s hastening the need for more robust digital solutions and better branching strategies.

Every financial institution will play a vital role in the coming economic recovery. What you are able to do to help consumers and businesses recover effectively will dictate how quickly recovery will take hold. Our expectation is that economic recovery in the U.S. will be inconsistent and spotty, and the actions of financial institutions, which serve as the backbone for communities, will be crucial.

Raddon will be hosting a webinar on July 29, The Impact of COVID-19: Strategies for Moving Forward,  where we will be reviewing in more depth the findings of these two extensive COVID-19 surveys and discussing the long-term implications for our industry. Join us to talk more about how to thrive in the post-COVID world.  

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