In March, I wrote about the government stimulus checks and their potential impact on the economy ("COMMUNITY VOICES: Will stimulus checks actually stimulate the economy? Maybe not as much as you think," March 31). Specifically, I worried that consumer confidence in the U.S. may falter, thus, causing Americans to save those checks instead of spending them (thus not contributing to GDP growth, adding to recessionary pressures in the economy).
My rational was that since many Americans who receive checks are still working, it would be in their personal interest to either save that money or pay down debt rather than spend it, ultimately preparing for hard times ahead. Furthermore, many of those who did lose their jobs are receiving an extra $600 a week on top of their unemployment benefits (in some cases bringing in more weekly income than when they were working) so they may rather save too due to the uncertainty of the economy.
Although we recognize financial prudence is a sensible response to uncertainty, households hoarding their money also poses a risk to the recovery in an economy dominated by household consumption expenditures.
Based on recent data released, we see these expectations playing out. The U.S. Bureau of Economic Analysis reported that consumer spending decreased 7.5 percent in March (even though personal income only declined 2 percent). Additionally, the personal saving rate in the U.S. increased from 8 percent in February to 13.1 percent in March. One reason economists track these rates is to help predict consumer behavior and economic growth. Based on the data, it appears households are already adjusting their spending and saving habits. These changes contribute to the downturn in the economy (current estimates indicate GDP fell by 4.8 percent the first quarter of 2020, some of that due to the decline in personal consumption expenditures).
Now why do I want to bring up this data again? Because I want to relate that to the impact it can have on our local economy here in Bakersfield. COVID-19 not only wreaked havoc on the health of Americans, but it inflicted turmoil on our economy due to the shelter-in-place orders implemented to slow the spread of the virus. Non-essential businesses in Bakersfield have been shuttered, impacting jobs and income in our local economy.
We see that California is finally starting to slowly reopen. We have already moved into Phase 2 of the governor’s four-step plan for reopening the economy and anticipate we will be moving into Phase 3 soon.
As the restrictions on businesses are lifted, it is more important than ever to shop local and support local businesses and their employees who have been negatively impacted by the extended stay-at-home orders. In other words, even if you are spending less and saving more (as the aggregate data indicates), when you do open your wallet, try to shop local whenever possible. This directly impacts the demand for local jobs. Businesses can’t hire people back if the local demand for their products and services is not there, thus, we need to support our local businesses to bring back jobs to the local economy. This is so important, as the March data from Bureau of Labor Statistics reports that the Bakersfield area unemployment has risen to 12 percent. For a little perspective, the unemployment rate had fallen to 6.2 percent last year in September. The last time Bakersfield had an unemployment rate that low was in 2006.
Of course, we know returning to our “previous normal” won’t be happening anytime soon. I realize wearing face masks, waiting in long lines for businesses due to social distancing measures, curbside pick-up only, etc., may seem like an added hassle you’d rather not deal with. Clicking on that “add to cart” tab for a non-local business may seem more appealing. But again, I know most of us want nothing more than to help those locally that have been negatively impacted by this pandemic. Thus, one the easiest things we can do right now to help our community economically recover is to shop local. As we shop local, businesses can hire more people, which lowers the unemployment rate, and ultimately creates income for our local residents.
Misty Stowers is a professor of economics at Bakersfield College. She currently resides in Bear Valley Springs.