The Impact of COVID-Related Health Concerns on US Consumer Demand｜ Tianxiao (Michael) Xu

With the onset of the COVID-19 pandemic and resulting nation-state policies, economies on a global scale have experienced an atypical recession, where sectors’ susceptibility to shocks and the shape of their recoveries depend on their reliance on in-person contact, as opposed to sensitivity to real business cycles or income elasticities. On a state level in the United States, the substitution effect for aggregate demand becomes prominent, while any income losses become compensated. With the construction of a probabilistic event accounting for such substitution away from in-person services and towards remote services, a parsimonious linear probability model (LPM) empirically establishes the association between US consumers’ COVID-related health concerns and the probability of such a substitution event occurring. Further principal component analysis and random forest classification findings corroborate the structural validity of the LPM specification, lending support to the central hypothesis.

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