“Human beings are social creatures – not occasionally or by accident but always”
Economic Recession. Global Depression. Corona-obsession. Perhaps, the scariest corollary of COVID-19 isn’t the negative slopes of market trends, but the fraying of social ties that are hardwired into who we are as people. It’s the ‘social recession’.
If we blow away the smoke of the economic bonfire, it is the seeds of social disconnection that are adding fuel to the flame at the core.
Just last week, my friends and I had to replace our Airbnb night with a virtual games night. I’ve heard about friends who have attended virtual cocktail parties, virtual birthdays and “attended” virtual work meetings only to mute themselves and fall back asleep. This technological remoteness that we have used to replace social connection has more consequences for the economy than you might expect. We are all getting more lethargic, more unwilling to step out and consume, and further away from completing our work projects and assignments.
Sleeping in, slacking off
Think of it this way. One major economic knock-on effect of the ‘social recession’ is the loss in productivity caused by the mental and physical toll placed on Australian workers. While a strong economy performs as a sturdy buffer against financial losses, social connection has always acted as a silver lining to boost solidarity through economic adversities. But, long periods of isolation detach us from personal relationships, social cues and face-to-face contact that are crucial for getting through the productive 9-5 grind.
It doesn’t help that the issue of lagging productivity has been a coffee stain on Australia’s button-up shirts for years now. The OECD Productivity Insights for 2020 revealed that while Australia had the 5th highest hours worker per person, we ranked a mere 16th in productivity levels. We will continue to see falls in productivity as our lethargic selves pull together at the office cubicles of our living room tables.
Source: OECD Hours Worked: Average annual hours actually worked
“So, just like we’re worried about an economic recession, we should worry about a social recession—a continued pattern of distancing socially, beyond the immediate pandemic, that will have broader societal effects, particularly for the vulnerable.”
But this ‘social recession’ has an even more sinister economic ramification. Consumers practising social distancing have arguably equated this to practising economic distancing. Keeping our distance from others has meant no more takeaway trips to our local cafes, restaurants and calls to our service providers. This has taken a huge toll on our small businesses, as ‘gig’ workers, sole traders and independent contractors report turnovers down 15-50%.
Just last week on a grocery run, I ordered two takeaway coffees at my favourite study spot café. While the barista was making my coffee, I overheard a few employees mention that the monthly turnover must be down nearly 30 or 40 percent. This was even with the augmented reach that delivery apps offered them. They were wondering if they should close just their doors.
But we shouldn’t settle for ‘surviving, rather than thriving’. That is, in a time plagued by financial distrust, it is important for us to decelerate the knock-on effects of the growing economic recession and rely on the mutual interdependence that upholds our national economy. That is, fulfil our social and economic duties by supporting the most economically vulnerable: our local food banks, service providers and our small businesses. In this way, strong community safety-nets can be built on social support and localised ‘economic connections’ that can help boost employment rates, investment confidence and market regrowth.
Re-bound, Re-silience and Re-tail Therapy
But, after every doom and gloom there’s always a boom…starting with Zoom.
While the ‘social recession’ may be contributing substantially to the economic downfall, restricted social behaviour has also marked a drastic change in traditional consumer behaviour. How we respond to ‘surviving the social recession’ may dictate the economic trends for the long-term future, even after the immediate threat to our health subsides.
It’s true, the immediate threat of a pandemic and new social distancing policies won’t create more consumer demand for non-essential goods and services. But many conventionally dubbed ‘non-essential goods’ have now become necessarily essential. They have become essential to assuaging our social and human cravings as we pamper ourselves to make our isolation more bearable.
In other words, we want to buy things that comfort us during times of economic uncertainty. This means more spending on ‘traditionally non-essential’ goods.
Sourced: Adobe Digital Index 2020
This is what has created the first sparks of a ‘stay-at-home-economy’, and some of the big winners have been e-commerce and digital services. With more time at home, consumers are looking to meaningful online experiences which will create an economic boost to the e-commerce sector. Earlier this March, the Adobe Digital Economy Index announced the key finding that e-commerce had grown 25 per cent from March 13 -15 from the baseline period earlier that March.
It’s the same for puzzles, home decoration, booze and beauty products. Data from ANZ and Commonwealth Bank found that expenditure on household furnishings and gardening supplies had experienced a jump of 26 per cent and 29 per cent respectively. Furthermore, while Myer recorded demand for board games and puzzles up 475 percent, the Commonwealth Bank recorded spending on alcohol soaring 86 per cent higher than the same period last year.
It’s the ‘Lipstick Effect’
This pattern of indulgent spending isn’t unfamiliar, it’s been coined the ‘lipstick effect’ named after the increased lipstick sales during the Great Depression. Even with the collapse of investment banks and markets during the 2008 GFC, Australian toiletries and beauty industry managed to generate a revenue of $2.13 billion, even reporting a rise of 1.7% from the previous year.
It seems that the modern ‘lipstick effect’ reigns on in 2020 as online beauty retailers report huge jumps in sales of the likes of bath oils and sheet masks. Companies such as Adore Beauty and Amazon have even announced they are looking to hire extra employees, up to 200 for Amazon, to meet surging demand.
The social bounce-back
All in all, it is clear that the ‘social recession’ is one of both cause and effect. While it is important that we continue to find new ways of staying productive, we also need to slowly dissociate social distancing policies with economic disconnection.
However, we have seen that one unintended resilient effect of the economic uncertainty has been the replacement of large investments with small luxuries. This growth in online consumer behaviour may be symptomatic of something more chronic. The demand for teleconferencing, online retail and entertainment may become part of a long-term habit for consumers, even after COVID-19 has passed.
However there is one thing for sure, even after the doom and gloom is over, months of contained cravings can predict a boost in theatre, restaurant and retail sales as Australians work towards rebuilding a buoyant economy.
References:
https://www.oecd.org/sdd/productivity-stats/
https://www.abc.net.au/news/2020-04-03/coronavirus-effect-on-retail-sales-feb-2020/12117982
https://www.theatlantic.com/ideas/archive/2020/03/america-faces-social-recession/608548/
https://hbr.org/2020/03/understanding-the-economic-shock-of-coronavirus