The Economy in Two Graphs

There are many ways to view economic progress. Some gauges take a narrow view; others are broad-based. One broad-based measure is consumer spending. It accounts for 70% of the economy, according to the U.S. BEA. Figure 1 highlights spending in key categories.

Durable goods are longer-lasting goods, such as home appliances and autos. Nondurable goods include groceries and everyday household items. Services include non-manufactured items—recreational services, insurance, utilities, and more.

The pandemic blocked spending in some areas—services (such as recreation)—and encouraged outlays in other areas—goods. This occurred when the government funneled trillions of dollars into the economy. Consumers responded primarily by purchasing goods.

Note that Figure 1 is adjusted for inflation. Even with that adjustment, spending on durable and nondurable goods has soared, which has helped drive economic growth.

However, if we mix global supply chain woes with the $3 trillion in economic stimulus from the late December and mid-March Congressional bills, we create the perfect recipe for inflation: strong demand and limits on supply.

Inflation is slowly accelerating in services, but price hikes have been much more prominent for goods—Figure 2. Notably, nondurables have exceeded 1% per month in October and November.

Next week, we’ll cover some of the key themes of 2021 and look at 2022. With that in mind, we wish you a happy holiday and Christmas season filled with peace & joy, family & friends, happiness & health.