Transitory Shocks and Consumption Dynamics: Pent-Up Demand or Hand-to-Mouth?

Martin Brown (), Mohamed Hamoud () and Jan Toczynski ()
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Martin Brown: Study Center Gerzensee and University of St. Gallen, https://szgerzensee.ch/about/staff/martin-brown-1
Mohamed Hamoud: University of Zurich and Swiss Finance Institute
Jan Toczynski: Queen Mary University London

No 26.01, Working Papers from Swiss National Bank, Study Center Gerzensee

Abstract: We examine the recovery of U.S. consumer spending following the COVID-19 recession using monthly transaction data for over 34,000 individuals. We find limited evidence that cutbacks in spending on in-person services or durables during the recession generated pent-up demand. Instead, spending dynamics are largely consistent with hand-to-mouth behavior: expenditures during and after the recession are correlated with income changes, even more so among households with low liquidity buffers and lower income levels. These results underscore the central role of income and liquidity, rather than sentiment or forced savings, in driving the post-recession dynamics of consumer spending.

Pages: 47 pages
Date: 2026-05
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