What Changes Are Here to Stay?

• Author: Barkey, Patrick M.
• Position: HOW COVID-19 HAS RESHAPED THE ECONOMY

Cities will still exist next year. So will universities, mass transit, rock concerts and football games. But that's not to say that the premise of their very existence hasn't been rocked by the COVID -19 pandemic. Because the one thing that all of those have in common--bringing people together in close proximity--has been switched from being something good, to being something potentially deadly over most of 2020.

As we are all aware, the need to distance ourselves imposed on us by a communicable virus has altered our individual and collective behavior to a degree that was once unthinkable. The changes in the economy, both in Montana and elsewhere, have been profound. Sports stadiums, skyscrapers and even university classrooms stand largely empty while spare bedrooms and basements are full of people tapping keyboards.

With each passing month, the particular character of this recession becomes clearer. As the fear and disruption of the initial outbreak of the pandemic eased, the downturn has settled in as being felt the most in consumer spending and in services that involve physical proximity. As of this writing, there is hope that the recently approved vaccine will begin to repair that damage.

Every recession brings on changes that are more lasting. Trying to sort out which changes will stick and which will be forgotten is a challenge, but it's interesting to try. Here is our list:

High Savings Rates

In the month of April, Americans saved an astounding 33.7% of their income, as businesses closed and shut-in orders were almost universal. Even in the more recent data, savings rates remain elevated, with October rates of 13.6%--roughly twice as high as rates that prevailed pre-COVTD. The trend is reflected in bank deposits, which rose by $2.3 trillion when the pandemic started and have remained elevated since.

Such behavior has never occurred in a recession. But many consumption opportunities have been prevented by the pandemic, while at the same time, the largess of the CARES Act has showered households with extra income. We look for rates to come down to historical levels, around 7%, when travel, restaurants and other consumption categories recover.

Strong Demand for Durable Goods

It is unusual in a recession to see consumer spending on durables rise, and yet that is exactly what is happening. After plunging by more than 20% compared to the previous year in April when the economic storm was fiercest, spending on cars, furniture, computers and...