The economy needs the wealthy to spend a lot more to get back on its feet

reading park
The end of solitary leisure is near.

  • Solitary leisure – people doing activities alone – defined the pandemic economy.
  • It left a hole in the economy worth billions, and the wealthy are the only ones who can fill it now.
  • A post-pandemic world will likely see a return to social leisure and the experience economy.
  • See more stories on Insider’s business page.

The end of a lonely year is drawing near.

Bank accounts are freshly padded with $1,400 stimulus checks, any adult should be able to get a vaccine around May, and everyone is readying for a “hot vax summer.” Shut-in Americans are gearing up to spend and socialize after a year in which the experience economy was replaced by one defined by solitary leisure.

In a year marked by social distancing, activities enjoyed alone such as golfing and boating replaced the group activities typical of social leisure, like amusement parks and tourist attractions. At the end of last August, Google Mobility data showed that restaurants, theme parks, museums, and the like were down 77% from pre-pandemic levels, and visits to parks, beaches, and marinas were up 51%.

Spending on experiences in 2020 declined by 29% compared to 2019, per a February Bank of America Research note. Spending on leisure fell by 17% and spending on “stuff” was down by 6%. Spending on solitary leisure categories such as golf and bikes remained strong in mid-March, per a subsequent BofA note.

But the anticipated economic boom of 2021 that should follow a mass vaccine rollout signals that the US will soon say goodbye to solitary leisure. A full economic recovery depends on something else, though: how the wealthy will spend their money.

The wealthy need to spend

The drop in spending left a huge hole in the economy that spending on solitary leisure alone couldn’t fill.

That’s because the experience-based economy, which thrives on activities like sporting events and travel, only continues to grow as long as people have discretionary money, Daniel Yoder, the department chair of the Recreation, Park, and Tourism Administration at Western Illinois University, previously told Insider. But discretionary spending all but disappeared.

Now, Americans are sitting on $1.6 trillion in savings. BofA Research estimates that to hit $2 trillion by the time the economy reopens. The economic fate of the US, it said, depends on whether Americans view their excess savings as wealth or deferred income.

biker
Solitary leisure created a hole in the economy that the wealthy need to fill.

Much of that is in the hands of higher-income households, who have more of a propensity to spend. Consumer spending accounts for 70% of the American economy, and half of that is from the top 10% of American households, per estimates from Goldman Sachs and Deutsche Bank, respectively. That means about one-third of US GDP comes from spending by the top 10%.

That all means it’s up to the wealthy to fill the gap from the solitary leisure era. “Higher income households are key to driving the recovery in consumption,” reads a recent UBS note led by strategist Keith Parker, which noted that more than half (52%) of Americans expect to increase their spending once life returns to “normal.” Those earning more than $80,000 annually anticipate increasing their spending the most – a more than 8% increase, compared to 5.2% for middle-income earners and 3.4% for those earning less than $30,000.

During the pandemic, spending among high earners was consistently 10% below pre-pandemic levels, compared to 5% below for middle-income earners. But spending less doesn’t mean they stopped spending entirely.

Instead of splurging on pricey gym memberships and educational trips as forms of discreet wealth, they began shelling out on nostalgia-tinged purchases from childhood collectibles to vintage fashion to rare books and art, from street art to cryptoart. Critics charged that the pandemic economy created various strange asset bubbles, but the common theme of people with money buying stuff online while bored at home was consistent throughout the year.

But that all might soon look a lot different.

A return to social leisure

As the economy continues to reopen amid the vaccine rollout, it increasingly looks like America will see the return of social leisure.

Restrictions are already lifting in states that had longer-lasting constraints, creating more opportunities to socialize and partake in experiences. Consider the restart of group fitness classes in New York City this week for the first time in a year and will resume limited live performances next month.

restaurants
2021 should see the experience economy bounce back.

There are also signs that travel is on the verge of a booming comeback as Americans itch with wanderlust. Airports saw their busiest time the weekend of March 12 since the pandemic began, and airline, hotel, and restaurant spending are all up this month compared to a year ago, although still not close to pre-pandemic times.

And, after a year of loneliness, Americans are ready for intimacy. Dating apps saw record-breaking use during the pandemic, and it looks like that won’t be abating any time soon. Several people told Insider’s Julia Naftulin that they’re looking forward to relentless dating and relieving pent-up horniness in a vaccinated world.

More in-person dates are certainly set to fuel the rebirth of the experience economy, inciting a shift from Facetime and socially distanced walks to nights at movie theaters and cocktail bars.

The caveat is that President Biden has been eyeing a tax increase on Americans making over $400,000. They could see their top income-tax rate increase to 39%, which could curb their desire to spend. So too, could the unpredictability of inflation as goods begin to get more expensive along with reopening.

The light at the end of the tunnel for a new “new” normal is within sight, but the wallets of the wealthy will determine just how bright it gets.

Read the original article on Business Insider