Background
The March spending data show that Americans are big spenders again. In March, American households spent more money than…ever. The monthly spend on personal consumption, measured by the BEA, was $1.28 trillion, which surpassed the February 2020 pre-pandemic peak of $1.24 trillion. This continues a trend we’ve seen of recovery in consumer spending throughout the pandemic. No doubt the arrival of the next round of stimulus checks encouraged this. What purchases are driving the post-pandemic spending splurge?
Findings
- Food is the new entertainment: Grocery spending jumped at the beginning of the pandemic and is still 16% higher than just before we locked down. This was expected given everyone staying home from restaurants. Yet in March restaurant spending was almost back to pre-pandemic levels. It seems that we are continuing to stock our pantries while we enjoy dining out again.
- Entertainment still suffering: We have not yet flocked back to theaters, sporting events, Disneyland, museums, and other live experiences. This spend is still down by half compared to normal.
- Radar love? New vehicle sales are up 39% (!) vs. year ago. Pent up demand? Time to splurge? Note that the lions’ share of these vehicles is “light trucks”, a category that includes SUVs. Apparently, we’re not all buying Teslas.
- Home improvement continues: Spending on home furnishings and tools continues to run well above historical rates. The computer/software category is also still well above normal. We are continuing to improve our homes, and, it seems, our home offices.
- Travel hasn’t recovered all the way: Hotels/accommodations and air travel are still down by half, though that’s not as bad as when they were almost totally shut down.
Implications
The big questions around this post-pandemic spending splurge are “what will stick?” and “what else will increase?” We’ve seen a dramatic jump in the savings rate as people stayed home and stopped spending on many items. Maybe it’s just people spending their stimulus checks. But how long before we all start traveling again and going to football games? The risk is that spending climbs to eat up the recent savings and possibly even cut the savings rate below its low historical level. Yes, we have a psychological need to “get back to normal” and live life outside our property boundaries. But this is also a time for advisors to help their clients avoid swinging too far in the opposite direction.
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The small print
The BEA data is not inflation adjusted, not that this would impact the findings during a low-inflation period. “Haircuts” is a payments to others for personal care so includes not only the stylists, but also things like getting your nails done. Entertainment as a category includes many things – gyms, sporting events, theaters, museums, clubs. I’ve obviously excluded many categories of spending, choosing to focus on the ones with the biggest change today vs. year ago (except dining out, which I included because it’s amazing how it’s back to pre-pandemic levels).