09 Jul 2020
Spend, spend, spend.
Will we, won’t we? A lot hangs on the answer.
This is a strange recession. Most are caused by financial crises, wars or external events that hit disposable income. This time, the Government turned out the lights at the end of March and told us to go home until it was safe to come out. It has poured money into businesses on a previously unimaginable scale to protect them from the sudden loss of sales. It’s paying nine million people 80% of their salary to protect them from loss of work, and it will continue paying a large part for months.
It’s the deepest recession for 300 years, the Governor of the Bank of England said a month ago. But it doesn’t feel like it. With money coming in and few opportunities until now to spend it, total enforced savings have been accumulating fast. We’re doing our best to spend it online – 74% up since February – but there are limits to what you can spend or feel like spending when you’re locked up at home.
The sheer scale of the money being saved is hard to get your head around, but when everyone suddenly behaves in the same way, at the same time a trickle turns into a torrent.
Household bank savings increased by a record £25.6bn in May to an eye watering £1.5tn. Yes, £1.5 trillion pounds, following a £14.3bn increase in March, and a stronger £16.7bn increase in April, according to the Bank of England (BoE).
Peel Hunt, the stockbroker, calculates that UK households will save £120 billion in 2020 compared with £38.2 billion in 2019. That’s an additional £82 billion in our savings and current accounts, almost as much as the Government spends on schools and teachers. Better off upper-middle class households are spending less than half their disposable income, and Nationwide says 40% of its customers have more disposable income than before the lockdown.
What will homeowners do with this huge sum of money?
According to a recent survey of UK adults by Opinion Matters for Safestyle in June 2020, 55% are prioritising home improvements. Sixty two percent say they feel wealthier than usual, as a result of saving money over the past few months on things like socialising, commuting and holidays, and 31% are likely to spend it on improving their home. That could mean anything up to an extra £27bn for RMI. One in eight say they’ll spend it in the next six months.
In their enforced lockdown, homeowners have been looking closely at their homes, thinking what needs fixing, what would make it more comfortable, convenient or look better.
Paul Roughan, Trade Merchants Sales Director Dulux Trade, and BMBI’s Expert for Paint, says: “With the onset of the pandemic, in the latter part of March and all of April, the consumer market absolutely boomed. Everyone wanted to decorate and stock up to decorate.”
Most professional economists do not expect the economy to bounce back, but economics is not called the dismal science for nothing! Most are forecasting variations on U-shaped, W-shaped, or L-shaped recoveries, in fact anything but a V.
But how will people behave when they’re let out of lockdown? In the second half of June and first few days of July, crowds went to the beaches, joined marches, enjoyed BBQ’s and street parties, and headed to the pubs. Will they keep that up? Consumer spending is the engine of the economy, and the Government is praying that we do spend, spend, spend to fuel the recovery. At the end of June, Chancellor Rishi Sunak said he’d wait to see whether consumers chose to spend or save before deciding whether he needed to stimulate the economy.
If there is a second damaging spike, all bets are off. But some economists, including Andy Haldane the BoE’s Chief Economist, say the UK is two months into the recovery, and Britain is on track to a V-shaped recovery as the economy rebounds far faster than expected. Real time data on payments, traffic, energy use and business surveys suggest that it’s less than half as bad as the Bank and other mainstream forecasters feared.
None of us have a crystal ball, including economists, whose forecasting of major turns in the economy is abysmal. This particular forecast comes down to how they think most people will behave, because there’s no precedent and numbers won’t tell you. Will people go on a spending spree because they’ve got it to spend and they think the storm is over? Or will they keep saving for the rainy days they feel are fast approaching? It hangs on that.
The surplus many homeowners have in their savings is burning a hole in their pockets, and the itch to spend is unbearable says Roger Martin-Fagg, a top behavioural economist. People like to keep things in equilibrium, and we get used to how things are, so we keep things like our bank balance close to its norm. When we have too little we try to boost it, and when we have more than we’re used to, we find ways to spend the extra. Roger is betting that our need to keep things in equilibrium will create a powerful V-shaped recession. You can listen to Roger’s podcast here:
Is there any evidence of this extra spending feeding through to the market in construction and the RMI sector? Freefoam, a plastics roofline and cladding manufacturer, is flat out with demand well ahead of its pre-Covid budget and well up on last year. Deceuninck, a PVC-U window and door systems manufacturer that supplies window and door fabricators in trade, retail and commercial, is bouncing back with June 2020 up 115% on June last year.
Is it time for you to do your bit for Britain and spend, spend, spend? And time to direct your marketing to capturing some of this spend for your business?
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