Consumer spending is one of the most important economic indicators. Changes in consumer spending habits may affect economic growth drastically. How did the pandemic influence US spending habits?
Consumer spending was affected by the COVID-19 pandemic. Households increased their savings rate in light of the uncertainty posed by the virus.
But effective vaccination campaigns brought back optimism. One year after the pandemic reached the United States, consumer spending was back to its pre-pandemic levels, as shown by this April’s data. Yet, variations in the patterns of spending show that the consumer is now putting more emphasis on different goods and services than before the pandemic.
One of the first effects of the strong comeback in consumer spending is seen in the rise in the prices of goods and services. Inflation is a concern in America, as it reached levels not seen since the 1980s.
It means that demand is back, but supply is lagging, creating an environment known as “too much money chasing few products.” But besides the higher prices triggered by healthy demand, consumer behavior and concerns changed too.
Tectonic Shifts in US Consumer Spending
Unsurprisingly, consumer spending decreased dramatically in areas such as movie theaters or international travel by US residents. Because of the lockdowns triggered by the pandemic and the travel restrictions, the consumer did not spend simply because it couldn’t.
On the other hand, the largest increase in consumer spending is seen in used automobiles, food, housing, and other relief services, and commissions on stock trades. Out of the three categories, used automobiles are a driver of recent inflation data, as prices skyrocketed due to the consumer’s reluctance to use public transportation.
The big question is what happens next. As the US economy reopens, so will movie theatres, for instance. Also, international travel by US residents will likely recover, too, as Europe and the United Kingdom, for example, make progress in their fight against the virus.
The expected increase in consumer spending in the categories that suffered the most during the pandemic will further put pressure on the prices of goods and services. Unless the spending habits change at the top end of the range, a prolonged period of higher inflation lies ahead.