Lasting effects of pandemic-era household transfers will keep goods spending elevated, spelling continued challenges for supply chains
As US goods consumption is set to remain strong for at least the next 12 months, B2B firms can benefit by targeting durable goods manufacturers, wholesalers, and retailers selling to the US market. Service growth opportunities are likely to be concentrated in the areas of travel and tourism, while certain amusement and recreation services continue to face sluggish growth prospects. At a global level, red-hot demand for goods has overloaded global supply chains. Continued demand for goods means these strains will likely persist, amplifying the effects of the Ukraine war and China’s lockdowns. Businesses should plan for elevated inflation into 2023, exploring ways to mitigate price sensitivity when passing on costs.
In 2020, US consumers shifted their spending from services to durable goods, as COVID-19 kept them home. The effect peaked in March 2021, when durable goods reached 36% above pre-pandemic spending levels. High goods demand has been a key factor behind snarled global supply chains in the last 18 months. In 2022, despite receding COVID-19 fears, durable goods spending remains elevated relative to services. This gives us reason to doubt we’ll see a full “pivot” away from goods spending. Computer and IT spending drove the durable goods boom (up US$ 108 billion monthly vs. pre-pandemic) together with household durable goods and furniture (up US$ 66 billion). While overall service spending has recovered to 2019 levels, some sectors lag. Live entertainment is still down US$ 29.5 billion on February 2020 figures. Transit is also weak (down US$ 50 billion monthly), although air travel showed signs of a rebound in March, as Omicron concerns fade. Restaurants saw the strongest rebound overall, but flatlined after mid-2021.
We don’t expect the shift from services to durable goods to fully reverse, because changes in consumption related directly to restrictions and virus fears do not fully explain the shift. On a longer timescale, it seems less that the pandemic boosted durable goods relative to services, and more that the post-2008 stagnation depressed them. From 2009 to 2019, the durable-goods-to-services ratio was stable at around 15.5%, correlating with depressed household wealth. During the pandemic, it jumped back to 20%, the 1990–2007 historic norm. This suggests the durable goods skew may be largely driven by the financial boost of the stimulus bills and booming wage growth, both of which are set to have lasting (albeit fading) impacts.
Going forward, we expect this financial boost, which has resulted in US$ 2.8 trillion of extra savings, will continue to support elevated goods spending. Our base-case estimate is that durable goods spending will remain elevated about 5% above its pre-pandemic trend.
A key risk to this assessment is high consumer price inflation, which accelerated to 8.5% YOY in March—the highest reading in over 40 years. However, it is not clear that higher inflation will fundamentally affect the goods vs. services spending breakdown. Goods have experienced higher inflation thus far, but service inflation is rising. Overall, high inflation is a greater threat to spending on discretionary goods and services by lower-income consumers, who are most likely to cut spending and trade down.
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