Monday, April 13, 2020

Watch for Reversion to Mean

It is easy enough to visualize how the economic shutdown caused by stay-at-home policies has affected consumer spending. It also is possible to suggest that once the pandemic has passed, spending patterns will start to revert towards the pre-pandemic pattern, if the rate of change is difficult to predict. 


If mobility spending (devices, primarily) has been hit by retail shutdowns, there will be pent-up demand, as phones do not stop breaking and batteries do not stop losing the ability to hold a charge. There will be a snap back of some volume, as deferred purchases cannot be avoided. 


Airline travel, movie attendance, cruise trips, fitness club attendance, travel in general and retail purchases will revert to pre-pandemic levels, over some period of time. Just as certainly, categories of spending that had increased dramatically will tend to revert towards mean as well. 


source: New York Times


That does not mean complete recovery to prior trends immediately, simply that over a year to a few years, mean reversion will reassert itself.


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