After COVID-19 induced a recession, the FRED Blog discussed the consequent drop in spending on services caused by mandated social distancing. This decreased demand for services (i.e., work done on one’s behalf) was partially offset by an increased demand for goods. Today, we revisit the topic to gauge the recovery in consumption spending on services.
The FRED graph above shows data from the Personal Income and Outlay Survey from the U.S. Bureau of Economic Analysis in inflation-adjusted U.S. dollars. The values are presented as a custom index equal to 100 in February 2020, the start of the COVID-19-induced recession. This data transformation allows us to easily observe the evolution of the three main components of personal consumption: services (in red), durable goods (in purple), and nondurable goods (in green).
The initial value of all three categories of consumption spending is noted by the dashed black line, and they all decreased between February and April 2020. Remarkably, spending on both durable and nondurable goods grew past their pre-recession levels soon afterward. However, the recovery in services spending has been much slower. At the time of this writing, spending on services stands at 99.3% of pre-recession levels. Because household purchases of services represent the majority of personal consumption expenditures, that is good news for overall economic activity.
Nevertheless, the combination of sustained high spending on durable goods and the type of supply chain bottlenecks documented by Fernando Leibovici and Jason Dunn might be helping to fuel the ongoing surge in consumer price inflation.
How this graph was 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 on “Add to Graph.” To change the units of the series, select “Units: Index (Scale value to 100 for chosen date)” and click on “Copy to all.” To add the custom horizontal line, use the “Add Line” tab and click on “Create user-defined line.” Enter “100” as both the start and end value. Use the “Format” tab to change the line colors, styles, and marks.
Suggested by Diego Mendez-Carbajo.