Series: Occasional Papers. 2202.
Author: Piluca Alvargonzález, Marina Gómez, Carmen Martínez-Carrascal, Myroslav Pidkuyko and Ernesto Villanueva.
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Abstract
This article analyzes the link between household consumption and its determinants during the pandemic in Spain. For this purpose, both quantitative and qualitative data on consumption included in the Consumer Survey Expectations (CES) carried out by the European Central Bank are used. First, we construct a consumption index on the basis of its qualitative data on spending trends during the pandemic, and its heterogeneity across population groups points towards both unsatisfied consumption (due to existing restrictions on consumption) and the deterioration in the labor market being drivers of the decline of consumption during the pandemic. Likewise, the results show that, in line with the less stringent measures in place to control the pandemic, the strong negative link between income levels and consumption developments (linked to forced savings) has moderated in 2021 (with data up to August) with respect to the previous year. Then, we estimate what proportion of the recovery in household expenditure during the third quarter of 2020, after the large decline observed in the first semester, can be explained by the observed changes in the distribution of hours worked. First, we combine information on hours, industry, gender and age in the Spanish Labor Force Survey and consumption in the Spanish Survey on Household Finances (EFF) to estimate the potential change in expenditure associated with the change of hours worked for different population groups (age, gender, and education level). Those estimations also inform about the groups of the population whose expenditure has been most affected by the pandemic (low-schooling and individuals below 55 years of age). In a second step, we then compare potential and actual changes in consumption observed in the ECB's Consumer Expectation Survey to gauge quantitative contribution of changes in hours to the evolution of expenditure vs other factors (such as postponed expenditure). We find that changes in hours worked can explain almost half of consumption recovery in the 3rd quarter of 2020.
Expected consumption trends are also analyzed. Results based on the analysis of qualitative data on expected consumption developments in the CES database indicate that in 2020 consumption perspectives were similar for households with different income levels, even if higher income families accumulated larger forced savings during this period. During 2021, once the phase of larger uncertainty about the economic and sanitary situation was overcome, higher income households also showed better consumption prospects. This suggests that savings accumulated during the pandemic may add greater momentum to the pick-up in consumption once the uncertainty about the epidemiological and economic situation abates. Likewise, individuals that have suffered a recent decline in hours worked (and, particularly, those that have run into unemployment) seem to be also more pessimistic about their labor situation perspectives, affecting their consumption expectations. This suggests that that the consolidation of the recovery of the labor market observed recently is likely to have a key role in explaining future consumption developments.