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Consumption of goods and services during the COVID-19 recession

Some shirts, some shoes, but a lot less service

Posted on August 10, 2020

First, some background on the line graphs shown above and below: The zero “date” is the start of a recession. The x-axis “periods” are the number of months after the start date. And the data are from the BEA’s Personal Income and Outlay survey.

Now, what do they show? The main revelation is that real personal consumption expenditures on services have decreased since February 2020, the start of the current recession. And, at the time of this writing, expenditures on services remain below their pre-recession levels. The data show that consumption of goods has also decreased, but not as much, and it has largely recovered. So, shirts and shoes notwithstanding, there’s a lot less service.

This decline in spending on services is significant for two reasons:

  1. Personal consumption expenditures are the largest component of U.S. gross domestic product.
  2. Household purchases of services represent the majority of personal consumption expenditures, as seen in the pie chart above. (The red, Pac-Man-shaped segment is consumption of services last year.)

Our final FRED graph shows that, at the start of the Great Recession in December 2007, real personal consumption expenditures on services began to increase. At that time, households reduced spending on goods—both durable goods (automobiles, appliances, furniture) and nondurable goods (food, gasoline, clothing). A previous FRED blog post discusses the dips in household spending on goods during and after the 2007-2009 recession.

So, the recent decline in spending on services has meant lower personal consumption and reduced economic activity. As the economy opens back up, be sure to practice your three “W”s while shopping for goods and/or services: Watch your social distance. Wear your mask. Wash your hands.

How these graphs were created: From FRED’s main page, browse data by “Release.” Search for “Personal Income and Outlays” and click on “Table 2.8.6. Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars.” From the table, select the “Durable goods,” “Nondurable goods,” and “Services” series and click “Add to Graph.” To change the units of the series to a custom index with integer periods, see here. For the pie chart, start from the release for real personal consumption expenditures, check the relevant series, and click “Add to Graph.” From the “Edit Graph” panel, use the “Format” tab to select graph type “Pie.”

Suggested by Diego Mendez-Carbajo.

View on FRED, series used in this post: PCEDGC96, PCENDC96, PCESC96

U.S. trade during COVID-19

Imports and exports have plummeted differently

Posted on August 6, 2020

The recession caused by the COVID-19 pandemic has included a precipitous decline in U.S. trade: The FRED graph above shows that both imports and exports have declined more than 20% relative to a year ago. This decline may not be too surprising, given that international trade flows are usually more volatile than domestic economic activity. Large changes in economic activity typically feature even larger changes in trade flows.

The only other recent time period with such a decline was early 2009, during the Great Recession. But the graph above shows a key difference between the two recessions: Recently, exports have declined substantially more than imports, which is the opposite of what occurred during the Great Recession.

The second graph shows the difference between exports and imports—i.e., the trade balance. During the Great Recession, U.S. exports increased relative to imports, narrowing the trade deficit. During the COVID-19 pandemic, U.S. exports decreased relative to imports, widening the trade deficit.

This difference may stem from the different natures of the two recessions. Imports often decline during a recession more than exports do, but the COVID-19 pandemic may be an exception: Increased demand for imported essential medical goods to combat the pandemic may have caused imports overall to decline less than they would have otherwise. Of course, exports may have declined more than in a typical recession because of decreased economic activity in an environment of social distancing and related policies.

How these graphs were created: First graph: Search for “Imports of Goods and Services: Balance of Payments Basis” and select the relevant data series with the units “Percent Change from a Year Ago.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Exports of Goods and Services: Balance of Payments Basis.” Finally, select the period as 2007-01-01 to the present. Second graph: Again, select “Exports of Goods and Services: Balance of Payments Basis” and use the “Customize data” option to search for and add the series “Imports of Goods and Services: Balance of Payments Basis.” In the formula bar, type a-b and click “Apply.” Finally, select the period as 2007-01-01 to the present.

Suggested by Matthew Famiglietti and Fernando Leibovici.

View on FRED, series used in this post: BOPTEXP, BOPTIMP

New details on mortgage rates

What impact does a FICO score have?

Posted on August 3, 2020

FRED now offers Optimal Blue Mortgage Market Indices, which provide a more-detailed look at mortgage rates. These indices are computed daily from actual mortgage closings and cover about 35% of the U.S. market.

The FRED graph above compares the weekly rates from Freddie Mac (red line) and from Optimal Blue (blue line). The latter also covers mortgages that aren’t managed by Freddie Mac, but with the restriction that they must be “conformable”—that is, the loan amount can’t exceed the limit for the property and its location.

In the second graph, we see that the loan amount influences the loan rate: The closer your loan is to the full value of the house, the more you have to pay. But the difference doesn’t look too large or unpredictable. Keep in mind, though, the composition of the loans for these two series may change for reasons that may correlate with the size of the loan: for example, the creditworthiness of the borrower.

So our last graph looks at different levels of creditworthiness—specifically, the FICO score of the borrower. The differences between the series don’t look dramatic, but borrowers definitely care about them. The difference between the rate for the highest score and the rate for the lowest score is about half a percentage point, which actually can add up significantly over 30 years.

How these graphs were created: For all graphs, start from the relevant release calendar. For the first, select the conforming series, and click “Add to Graph.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select the average 30-year mortgage. For the second and third graphs, select the relevant series in the release table and click “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: MORTGAGE30US, OBMMIC30YF, OBMMIC30YFLVGT80FGE740, OBMMIC30YFLVLE80FB680A699, OBMMIC30YFLVLE80FB700A719, OBMMIC30YFLVLE80FB720A739, OBMMIC30YFLVLE80FGE740, OBMMIC30YFLVLE80FLT680


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