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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.

Is there more or less health care than before the pandemic?

The pandemic brought about serious upheaval in the health care sector. Services directly connected to the COVID-19 virus were overwhelmed at times, while non-essential services came close to a standstill. Our question for today is, in sum, how has the health care sector fared?

The FRED graph above shows personal consumption expenditures on health care. This measure probably isn’t a good indicator to answer our question, as it doesn’t include any of the expenses paid by other entities, such as businesses and various levels of government. So we need a measure that encompasses all of the health care sector.

The second FRED graph gets closer to what we want, although with data that are not as current as the data in the first graph.

We see that total revenue of health care establishments (in blue) dipped severely at the start of the pandemic, but then got back on track with its previous trend. This pattern is actually not that much different from the rest of the economy. Health care employment (in red) shows a different picture: Employment is still far below the peak before the pandemic and, hence, even further below the long-term trend.

But one has to be careful here: The revenue numbers aren’t adjusted for inflation. So, one more graph…

Our last FRED graph (below) shows that this storyline still holds: The health care sector has had to deliver more than what had been expected before, but with far fewer employees.

How these graphs were created: First graph: Search for and select “health care expenditures.” Second graph: Search for and select “health care revenue.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “health care employment.” Use the “Format” tab to put the y-axis on right for the second series. Reduce the sample period to focus on the last years. Third graph: Starting with the second graph, use the “Edit Graph” panel to add a series to the first line by searching for “GDP deflator” and applying formula a/b*100.

Suggested by Christian Zimmermann.

The health of labor markets post-pandemic: The supply perspective

As we discussed in the previous post, firms everywhere are having serious difficulties filling vacancies. With these worker shortages on everyone’s minds, let’s discuss how the pandemic has shaped the workforce.

The FRED graph above shows the fraction of people who participate in the labor force—that is, who either have a job or are actively looking for one—by age group. In previous recessions, only teenagers had significant declines in participation rates; clearly, most workers who lost their jobs kept looking for another. In 2020, however, participation rates declined across the board, with would-be workers leaving the labor force in the face of widespread shutdowns, health concerns, school closures, and financial support from the government.

That said, different age groups clearly reacted to the recent recession in different ways. Older workers’ participation rates declined through 2021—probably led by a wave of early retirees—but prime-age workers’ rates plateaued slightly below their pre-pandemic levels. It’s likely that some would-be workers remain out of the labor force because of lingering health concerns and childcare needs.

Now, what about teenagers today? The participation rate for 16- to 19-year-olds has increased beyond its pre-pandemic level. It’s possible some of this is related to historically low undergraduate enrollment, with high school graduates opting for work in the tight labor market over potentially remote learning.

How these graphs were created: Search for and select “Labor force participation rate – 16-19 Yrs.” From the “Edit Graph” panel, use the “Add line” tab to search for and add “Labor force participation rate – 20-24 Yrs.” Do the same for “Labor force participation rate – 25-54 Yrs.” And “Labor force participation rate – 55 Yrs. & Over.” Set the date range to mirror the dates shown in the blog post.

Suggested by Carlos Garriga and Devin Werner.



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