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The Consumer Drives the Economy

September 20, 2021 | Posted in: Insights

My most recent blog post, The Roar Continues, focused on the eye-popping sales of luxury goods as well as record auctions of various types of collectibles. While not as glamorous, basic trends in consumer spending are actually quite interesting.

The Bureau of Economic Analysis publishes quarterly breakdowns of expenditures by category which allows us a peek into consumer preferences. Many of the 2020 statistics are not surprising in light of the lockdown and the fact that many kinds of activities remained curtailed even as the economy reopened. For example, expenditures on gasoline, transportation, recreational services, and food services/accommodations fell 28%, 31%, 30%, and 19% respectively. All four have recovered in 2021 although recreation and transportation services expenditures remain below 2019 levels. Purchases of clothing fell 1.3% in 2020 but that has been followed by a 21% increase in 2021 as people began to return to the workplace. Again, not surprising given the “stay at home” mandate were strong growth in expenditures on food purchased for consumption at home, home furnishings, and recreational equipment which rose 10%, 14%, and 19%, respectively. Finally, health care expenditures fell 1.9% in 2020 and have only recovered by 2.4% in 2021 which is understandable given that the continued necessity to treat Covid-19 patients restricts discretionary procedures.

However, there have been some surprises, at least for me. First, motor vehicle and parts expenditures rose 14% in 2020, and that has been followed by a further increase of 25% in the first half of 2021. I am hard-pressed to come up with a good explanation for the strength in this sector. Second, expenditures on home furnishings, recreational goods and equipment, and other durable goods continue to surge in 2021 increasing 13%, 14%, and 20%, respectively. I would have expected the rush to create a resort-like environment at home to be a one-time phenomenon that would begin to taper off as people returned to the work site.

From a short term perspective, I am sure a good deal of “retail therapy” is behind some of these trends. The more interesting question is whether there has been a permanent change in the tradeoff between creating an idyllic home environment versus expenditures on restaurants, travel, and recreation. A number of industries and jobs depend on the answer!