With the focus squarely on the “re-opening” of the economy, expectations remain high among pundits that activity will bounce back quickly. We are not so sure, especially when it comes to how consumers will begin spending again. Remember, this group is the main driver of economic growth in the country, so without their participation there is no sustainable recovery.

To be sure, there will be a natural bounce in certain items following the loosening of the “shelter-in-place” orders as many businesses go from zero activity to some activity. But what happens after? In previous reports we have advised investors to watch what the savings rate does amidst the current mayhem and, lo and behold, in March it ticked up to a 40-year high of 13 per cent.

Consumer confidence is one factor depressing consumption, but so too is the fact that a vast majority of businesses were shuttered during the month. Moving forward, consumer confidence is the key and will likely remain subdued. And, not to state the obvious, rising unemployment will also have a dampening effect.

Indeed, a recent National Bureau of Economic Research paper published last month — Spending Less After (Seemingly) Bad News — attempted to quantify the relationship between a rising jobless rate and the effect on spending. The analysis focused on whether consumers considered these headlines “real,” meaning whether they were applicable to their actual financial conditions or not (as we know from the more than 30 million U.S. unemployment claims processed from the past six weeks, the situation is very real for many).

Those who’ve kept their jobs are bombarded with negative headlines and will likely cut back as well

Here’s what the NBER had to say right on the opening page: “We find that consumers respond to the salience of adverse macro announcements about their region by cutting back on discretionary spending even when the news is uninformative about local macro-economic fundamentals … seemingly ‘bad news’ contributes significantly to sharp consumption drops.”

Not only will the spending of those who actually lost jobs throttle back (naturally), but those who’ve kept their jobs are bombarded with negative headlines and will likely cut back as well.

The authors go on to measure the corresponding impact on spending: “We show that an announcement of a 12-month maximum in the local unemployment rate leads to a two per cent drop in discretionary spending in the two weeks after the announcement.”

That’s a massive decline in just a two-week period. And the effects don’t stop there: “Households in the areas that are subject to unemployment maximum announcements reduce their spending significantly and persistently. We find no evidence that the consumption drop is subsequently reversed. On the contrary, we show that a single 12-month maximum unemployment announcement lowers future household discretionary spending at a horizon of two to four months.” If there is a persistent rise over a five-month period, then “the drop in current spending is close to five per cent.”

Wow. It is interesting to see that the analysis was centred on the news of the U.S. unemployment rate hitting a 12-month high. With the consensus at 16 per cent for this Friday’s employment report (which would be the highest since 1939), what do you think the impact on spending will be at an 80-year high? It likely won’t be good and is just another reason why we won’t see a return of the consumer anytime soon.

Also, keep in mind that U.S. households just spent more in one month (US$190 billion in March alone) on food from the supermarket than they did in the previous 15 years combined. Think they’re dining out much in the future with that much pasta and canned tomatoes in the pantry?

Consumer discretionary stocks are the last thing you want exposure to, if the past proves prescient

How long will it take for consumer cyclicals to come back? Let’s just say a long long time … hotels, restaurants, casinos, travel, accommodation. How do we know? Because of what history teaches us about what happens when a recession destroys a bubble. And this bubble was in leisure time, which is why the jobs boom in the past 11 years was in the three Bs: bartenders, barmaids and bell captains (make it four … blackjack dealers).

Let’s look at that historical record. It took nearly 10 years for the commodity space to make a new high after the recession burst its inflationary bubble back in 1980. It took a good five years for commercial real estate to reclaim its pre-1990 recession bubble peak. Can you believe it took 17 years for the tech sector to make its way back to the old pre-2000 dotcom highs? And look at the U.S. banks: seven full years before the financials made their way back to the 2007 credit market bubble peak.

The lesson here is that the area of the market and economy hardest hit by the recession is the one that takes the longest to stage the comeback. Consumer discretionary stocks are the last thing you want exposure to, if the past proves prescient.

David Rosenberg is founder of independent research firm Rosenberg Research & Associates Inc. You can sign up for a free, one-month trial on his website.