Background
The pandemic didn’t slow spending – it jacked it up massively! After the first quarter of lockdown in April-June 2020, personal consumption spending has consistently been climbing. It is now at the highest level…ever. Certainly, the federal stimulus has been a big factor. Even airlines and hotels are rebounding to near historic levels; but if you look at the data you’ll learn the 6 reasons your spending is the highest ever.
The main comparison here is the fourth quarter of 2021 to the fourth quarter of 2019. I’ve also shown the nadir of spending – the second quarter of 2020 – as a comparison point.
Findings
- #1 — On the road again: Car purchases and gasoline combined represent a $243 billion annualized growth in spending vs. 2019. Two big factors emerge. One is spending on gas; while miles driven last year only rebounded to be on par with 2019, gas prices are up 30%. And while new cars are hard to come by, used car sales were up over $100 billion!
- #2 — Eating: Yes, we spent more on groceries when the lockdown started – up 12% in 2020 Q2 – but this kept rising to a 21% jump by end of 2021. On top of that, we not only returned to dining out with a vengeance – we’re actually spending more now than before the pandemic! In total we’re spending almost $300 billion more a year on what we literally consume. Note groceries includes alcohol – which saw spending grow at the same rate as food products.
- #3 – Housing: House prices and rental prices are climbing. On top of that, utilities are more expensive with electricity and natural gas both up 11%.
- #4 – Health care: Fear of COVID stopped many of us from going to the doctor in 2020 Q2. This was the biggest spending drop, at over $500 billion. But we’re back to normal, even beyond, as we are now spending $126 billion more than pre-pandemic medical care. With the cost of care rising only 2.5%/year, this suggests we are in fact getting more care.
- #5 – Home furnishings: Is there anyone who didn’t have a lockdown project to improve their home? In addition to home furnishings, this category also includes appliances, dishware, and tools, with every category up about 30%.
- #6 – Clothing: Sure, we all stopped shopping at the start of the pandemic. Besides, who needs nice pants for a Zoom call? Yet…we’re up $80 billion/20% vs. pre-pandemic levels.
Implications
Obviously, at a macroeconomic level, we face a big question regarding if the country can sustain the red hot economy of spending. At an individual level, we each face the question of if we are over spending when we may want to save and prepare for the inevitable recession. Taking on higher mortgages and car payments, not to mention credit card bills, present real financial risks for many Americans. The savings rate has dropped dramatically – a subject for the next post.
The data above suggests other problems that are evolving. Big spending on food means bigger waistlines. Half of Americans admit to gaining weight in the first year of the pandemic; does anyone think that number isn’t really a lot higher? Combined with the big increase in demand for help from psychologists, it appears we are facing a growing health crisis down the road. Many medical specialties likely will experience an ongoing surge in demand.
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The small print
This data is from the Bureau of Economic Analysis. They annualize their quarterly data so I’ve reported the annualized number in the category chart and analysis. The total spend data is for each quarter, not annualized. Housing costs include a BEA calculation that imputes the rental equivalent for owned housing so it’s not exactly what you spend (e.g. mortgage, insurance) but is a proxy for that.