Economic Outlook-Is Consumer Spending Shifting from Goods to Services?

The Wall Street Journal February 2, 2022 5:30AM EST “Consumers Are Pivoting Spending to Services Like Dining and Travel” by Harriet Torry

Read The Wall Street Journal for all the details

Summary by 2244

Figure from BLS.GOV

Data presented in charts in The Wall Street Journal article

Spending on durable goods and services hit bottom in April 2020 at about -20% from February 2020-the start of the COVID pandemic. As people were locked down with the pandemic they stocked up on furnishings and other large-ticket items for the home. As a result, durable-good purchases increased rapidly to about +10% in June 2020 and then rose progressively, with some fluctuation, to nearly +35% by April 2021 and are at about +15% now. With people slowly coming out of their homes with vaccines and better medicines, service spending increased relatively slowly, compared to durable-goods, reaching -10% in June 2020 and standing now at even from February 2020.

Looking at the component pieces of the Consumer Price Index (CPI), traditionally going back to before 2014, Services (less energy services), Goods (less food and energy), Food and Energy each contributed about 1.25%. Energy has fluctuated the most over time, being as low as about -2% in 2015 to as high as 2.5% in 2017 and 2018 and now has surged to about 6.2%. Goods and food have surged recently to about 4-5% each. With a declining rate of omicron, and a declining rate of big-ticket purchases, and with warmer Spring weather, economists suggest that the CPI segments may begin to normalize.

Other points

The Federal Reserve of NY indicates that big-ticket purchases peak at +63% in August to +58% in December. Those surveyed in December said they were less likely to spend, in the next four months, on vacations, home repair, appliances and furnishings. There’s a sense that consumers have some fatigue, they’ve stocked their homes, and they are experiencing higher prices caused by supply outages. Inflation was up 10.7% in December on furniture and appliances and about 3.7% on airfare and rent. Prices could fall if and when energy prices stabilize and fall.

While the experts point to a shift from goods to services they note that 2022 is off to a slow start in response to the increase in COVID Omicron infections. This may be responsible for the slower consumer spending and slower job growth in December. Restaurant and travel bookings are down in January suggesting a pause in this shift in spending. Discretionary purchases for vehicles are being delayed as prices are relatively high. Visant Prabhu (Visa) comments that, regardless, 2022 should be a “big year for travel” as Omicron is likely to be short-lived making way for a speedy recovery for the beaten-down airline industry.