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- Americans have been spending on goods at record amounts during the pandemic, while services spending has flatlined.
- They're buying things for their home and life events, cementing the role of private consumption in the economy.
- It's providing an economic boost, but hurting the world's supply chain.
Even after an economic reopening and a mass vaccine rollout, experiences aren't what they used to be.
Eighteen months into the pandemic, Americans are spending way more on goods than ever before, according to Insider calculations of personal consumption expenditures data from the Bureau of Economic Analysis.
While Americans spend nearly twice as much on services than on goods, the pandemic and recovery have put a damper on the former while massively accelerating the latter.
As you can see in the chart below, spending on both goods and experiences plunged in April as the pandemic first made its way across the US. While both categories have since rebounded, spending growth for goods still remains stronger, surpassing pre-pandemic levels with a 25.69% increase from January 2019 to August 2021. Spending on services, however, has only increased by 7.15% in the same time frame.
Services spending fell faster than for goods, and is recovering much more slowly. Both spending categories were highest in the months immediately before the pandemic hit the US, in January and February 2020, respectively. It didn't take long for goods spending to surpass this peak, in June of the same year. As of August, spending on services is barely above its pre-pandemic peak, while goods spending is still flying high.
While spending on services still accounts for the lion's share of the economy, it's the first time in decades that spending on goods has increased so much.
People want to buy for the home and life events
The slower recovery in service spending makes sense. With months-long lockdowns and lingering restrictions across the country throughout much of 2020 and the first quarter of 2021, there were little-to-no services to even spend on.
As the country slowly reopened, vaccinated consumers began to return to out-of-home activities, with plans to spend extra on experiences like travel and restaurants. Since the spring, Americans have been eating and drinking out more and more.
But the steady strength of goods spending says a lot about how the economy is reshaping itself post-2020. Americans' yearlong stint inside the homebody economy led to a spike in spending on private or homebound matters. They bought everything from furniture and appliances for home improvement projects to loungewear and kitchen necessities as they worked and cooked from home.
The elevated spending in goods indicates that the private consumption that gained foothold during quarantine has found its way into a post-pandemic landscape.
A McKinsey & Co. report from May found that consumers intend to continue the investments they made in their home life post-pandemic. And a recent UBS survey found that Americans are extremely or somewhat likely to embark on a big life event like moving to a new area or having children in the next year than they did before the pandemic. That would translate to a lot of spending on necessities, from a new couch to diapers.
The demand for goods is hurting the supply chain
However, consumer spending slid toward the end of the summer as Americans braced for another round of infections with the highly contagious Delta variant. Spending at retailers dropped by 1.1% to $618 billion in July, and Bank of America predicted that it could cause shoppers to put away their credit cards, which partially explains the dip in spending on goods in the chart above. But by September, shoppers had shrugged off the Delta wave and retail sales trounced expectations, hitting $625 billion.
And Americans didn't let Delta put a halt in their eating and drinking plans, continuing to spend at restaurants and bars. As evident in the chart, spending on services has remained on a slow and steady incline all summer.
The elevated spending on goods is a two-edged sword for the economy. Americans needed to spend to help the economy glow up after the coronavirus recession, especially after the Delta variant squashed the economic boom that was supposed to happen over the summer. With consumer spending typically accounting for 70% of economic activity, it's a key driver of the country's revival.
But it's also hurting the world's supply chain, which has been a complicated mess the entire year. A host of factors have caused many Americans to wait and spend more on the things they want: permanent and temporary factory shutdowns as a result of pandemic safety restrictions and labor shortages, congested shipping ports, the US-China trade war, bad weather, and global traffic jams.
Companies were also under unprecedented pressure. Not knowing what the work-from-home economy would do to consumer behavior, many of them didn't accurately forecast demand and weren't adequately prepared to meet it once the economy reopened.
While the supply chain crisis is showing signs of easing ahead of the holiday season, the consistent spending on goods indicates that it could be a while before it fully rights itself.
source https://www.businessinsider.com/americans-spending-goods-versus-experiences-supply-chain-crisis-2021-10