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The pandemic’s impact on household spending on healthcare

Differences in the demand for goods and services

The FRED Blog has examined the impact of the COVID-19 pandemic on the overall level of economic activity and employment in the healthcare sector. Today we explore a related topic: how households changed their healthcare spending during that time.

The FRED graph above plots data reported by the US Bureau of Economic Analysis—specifically, the percent change from a year ago in the annual inflation-adjusted value of three types of household healthcare expenditures. Thanks to the graph, we can visualize the impact the pandemic had on household spending on medical products, appliances, and equipment (blue bars); hospital and nursing home services (red bars); and outpatient services (green bars).

During the outbreak of the pandemic in 2020, annual household spending on health services (both inpatient and outpatient) decreased. This was a first since 2002, when data are initially available. However, annual household spending in health goods increased. What gives? The combination of broad mandatory social distancing and strict epidemiological protocols in medical facilities can likely explain the decreased demand for face-to-face health services while demand for health goods didn’t wane.

FRED has data on household expenditures by type of health good, and we will tap into those to gain additional insights into consumer spending.

Our second FRED graph shows the breakdown of total household spending on health goods into its two subcategories: durable goods, therapeutic appliances and equipment (purple bars) and nondurable goods, pharmaceutical and other medical products (orange bars).

During 2020, annual household spending on medical drugs and other products increased at a pace similar to the pace recorded in previous years. And annual household spending on therapeutic products decreased, not unlike it did during the 2007-2009 recession. Both recessions are marked by gray shaded areas in the graph. So, perhaps, broad economic conditions impacting the employment status and income level of households, rather than a pandemic, can best help explain the cyclical decrease in spending in that particular type of goods.

How this graph was created: Search FRED for and select “Real personal consumption expenditures: Medical products, appliances, and equipment.” Next, click on the “Edit Graph” button and use the “Add Line” tab to search for and add the other series. Next, click on the “Edit Line 1” tab, change the units to “Percent change from year ago,” and click on “Copy to all.” Use the “Format” tab to select “Graph type: Bar.”

Suggested by Mickenzie Bass and Diego Mendez-Carbajo.

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