The Pandemic Distorts Spending Patterns – March 29, 2021

This has been a recession like no other. Lockdowns battered economic activity in March and April, while the reopening of the economy and government relief helped bring back some jobs and support numerous businesses and industries. 

But not all is well. A job tracker from Opportunity Insights reveals that employment rates among high-wage earners have nearly recovered to pre-recession levels, but low-wage earners are still down 28% versus last February.

We also see distortions caused by the pandemic in spending patterns.

Consumer spending is important because it accounts for about 70% of the economy, according to data from the U.S. Bureau of Economic Analysis.

Let’s review the graphic below, which illustrates spending in three important categories and compares each category versus one-year ago.

Note the much wider divergence in the classifications since the pandemic began. Also note that the winner over the last year has been durable goods.

Durable goods are defined as items that don’t need to be purchased often and tend to last at least three years. These can include autos and household appliances. The most recent peak of 21.9% was the best reading since the mid-1980s. Government cash has been extremely helpful.

Spending on nondurables, which includes clothing, gasoline, food, paper and cleaning products, and some electronics, has also been healthy.

But social distancing restrictions, government limitations, and fear of the virus have hurt services.

Vacations, sporting events, movies, theaters, air travel, and more are down. During the 2008-09 recession, spending on services held up much better. Today, it’s been hovering at -5% for several months. Services are typically more resilient in a recession. That’s not the case today.

Government relief has been costly. Yet, it has gone a long way in helping support some industries. But barriers erected by Covid have harmed others. Until the pandemic is over, it’s unlikely these distortions will quickly fade away.

Created 2021-03-29 17:05:41