Lessons from the Great Recession

Despite the ongoing efforts of fiscal and monetary authorities to stave off economic collapse, COVID-19 has already wreaked havoc on markets. Experts mostly agree that an economic recession and financial crisis is inevitable. Opinions diverge when it comes to the depth and severity of the looming crisis.

To help make sense of the situation, the Kilts Center for Marketing at the University of Chicago Booth School of Business has collated a sample of papers that use Nielsen data available through the center. The data come from an ongoing relationship between the Nielsen Company and Chicago Booth to support global, academic research on retailing and consumer behavior. The selection of articles herein allows us to look to the recent Great Recession for guidance on what to expect from consumer behavior, a key macroeconomic driver, during the upcoming crisis. The studies document several empirical regularities regarding consumer behavior and macroeconomic consequences.

On the consumer side, households switched to cheaper store formats and generally purchased more goods on discount. However, the impact of the recession was most pronounced for lower-income households with a female head, which lacked the ability to engage in consumption smoothing. Industry experts were unsurprised by the growth in supermarket private-label brands by more than a percentage point during the Great Recession, although this growth appears to be part of a broader trend that predated the recession by at least several years. Income shocks during the Great Recession do not appear to have been a catalyst for private-label demand. Finally, sticky retail prices induced excessive hoarding of staple items, especially amongst higher-income consumers.

On the supply side, the Great Recession had an adverse effect on companies’ product assortment choices. Credit constraints disrupted both the willingness and ability of consumer-goods companies to launch new products. At the same time, many companies adjusted their product assortments toward lower-valued goods with lower prices. The uniformity of companies’ product-line offerings across markets facilitated spillovers between regions that were otherwise differentially affected by the recession.

These supply-and-demand responses generate a number of striking macroeconomic implications. As housing values fall, so too do retail prices fall in nearby grocery and drug stores. Conversely, higher home prices can stimulate higher local price inflation for consumer goods. The incidence of consumer-goods price stickiness during a recession appears to be moderated by the prerecession market volatility in a market: companies are more informed in volatile markets and are therefore better equipped to respond to the recession.

In addition, studies of government stimulus point towards encouraging patterns in consumer response. For every $1 of stimulus distributed during the Great Recession, consumers spent an average of 18 cents on local goods, leading to a multiplier effect of 40 cents when analyzed through the lens of a macroeconomic model. These spending increases coincided with the receipt of the stimulus payments and not with the timing of notification of the payments. Similarly, consumers poured their unemployment insurance back into the economy: one week of additional unemployment insurance increased consumption by 1.68 percent.

We hope this collection of papers supported by the Nielsen Datasets at the Kilts Center provides a number of clues on the likely patterns of consumer and company response to the pending economic crisis, along with potential policy implications.

Jean-Pierre Dubé
Sigmund E. Edelstone Professor of Marketing and Charles E. Merrill Faculty Scholar
University of Chicago Booth School of Business

The conclusions drawn from the Nielsen data are those of the researcher(s) and do not reflect the views of Nielsen. Nielsen is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein.