Economic data deluge
Today’s avalanche of economic data for March reinforces what an abnormal recession and recovery the U.S. is experiencing amid the pandemic and multiple rounds of government stimulus. Following up on Horizon Investments’ inflation report earlier this week, we want to highlight spending on big-ticket items and why the unsustainable path it’s on signals to us that a rise in inflation is likely temporary.
American spending on durable goods — things such as cars, furniture, appliances, computers and other long-lasting products — is 28% higher than where it was in February last year before the economy was shut down, according to Horizon’s calculations using Commerce Department data.1 And it may have been propelled by government stimulus checks, which sent household income soaring at an annualized rate of 21.1% in March.
Durable goods spending is also incredibly strong compared to the trend it was on in the years before the pandemic hit. Big-ticket spending is running nearly 20% above the trend in the five years pre-COVID, according to Horizon’s calculations. Spending on services, in contrast, is running 8% below the pre-pandemic trend.
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March 2021 U.S. Consumer Spending Patterns
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Vs. Pre-COVID Level
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Vs. Pre-COVID Trend
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Durable Goods
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27.6%
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19.5%
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Total Goods
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16.4%
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19.5%
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Services
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-5.1%
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-7.8%
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Total Spending
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1.4%
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-1.9%
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Source: Bloomberg, calculations by Horizon Investments, as of 3/31/2020
Pre-COVID levels are from February 2020, Pre-COVID trend is the five-year average before February 2020
In short, nothing about the current economic environment is normal. In Horizon’s view, the competition among shoppers for many of the same items goes a long way to explaining some of the inflation fears that people have – and rightly so, if you need a used car or want to renovate your house.
However, the spending on durable goods may strongly shift to services when we can all travel and live in a more normal way as more people are vaccinated and local economies reopen. That change in spending, along with the bracing effect of high prices, will go a long way to putting a dent in big-ticket spending as well as the inflation fears that are on everyone’s lips right now.
1 https://www.bea.gov/news/2021/personal-income-and-outlays-march-2021
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This commentary is written by Horizon Investments’ asset management team. For additional commentary and media interviews, contact Chief Investment Officer Scott Ladner at 704-919-3602 or sladner@horizoninvestments.com.
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