Consumer Spending Decline An Ominous Sign COVID-19 Ravaged US Economy Is Weakening

Filed under: News,The Economy |

Sept. 9, 2021 — A 2.7 percent consumer spending decline is yet another ominous sign the COVID-19-ravaged US economy is in trouble.

The report comes just as millions have lost extended federal unemployment benefits, joining millions more in Republican-led states that cut off enhanced unemployment benefits early.

The consumer spending decline comes after last week’s tepid jobs report.

Average annual expenditures for all consumer units in 2020 were $61,334, a 2.7-percent decrease from 2019, the U.S. Bureau of Labor Statistics reported today.

consumer spen ding decline
Consumer spending declined in 2020

Spending declined as prices increased with the Consumer Price Index (CPI-U) rising 1.2 percent. Meanwhile, average income before taxes increased 1.8 percent. The current core inflation rate as measured by the US Federal Reserve Bank stood at 3.5 percent in July.

Most significantly, nine of the fourteen major components of household spending decreased during 2020, painting a picture of households growing more cautious and adapting to living and working under COVID-19 restrictions.

The largest spending decline was for apparel and services, down -23.8 percent, followed by personal care products and services dropping -17.8 percent, with salons, barbers closed or under restricted operations and fewer people going to work, at least in person.

On the positive side, Americans clearly spent more time reading. A 23.9-percent increase in expenditures for reading was the largest percentage increase among all major components, followed by a 14.4-percent rise in cash contributions spending, a 3.5-percent bump up in housing, and a 1.1-percent rise in personal insurance and pensions.

Despite the recent slow growth in new jobs, The Bureau of Labor Statistics yesterday reported a record number of job openings in the United States.

Research group The Conference Board’s index of employment trends slowed in the past two months, “reflecting the Delta variant’s impact on economic activity, especially in in-person services,” said Gad Levanon, head of The Conference Board Labor Markets Institute in a statement. “We continue to monitor two trends which could put a damper on employment growth. First, the number of new COVID-19 infections continues to increase, holding back economic and job market recovery.

“Second, the labor market continues to experience historical recruiting difficulties. According to a survey of the National Federation of Independent Business, 50 percent of small employers reported difficulty filling positions in August, an all-time high accompanied by rapidly rising wages.”

Still, The Conference Board clings to the notion that cut-off in unemployment benefits and the return of in-person learning for million on unvaccinated minors will lead to a solution for the labor shortage.

However, Levanon, said he expects “another month of subpar job growth in September, but strong job growth is likely resume in the last quarter of 2021. Since COVID-19 is not going away anytime soon, a return to normal spending on, and employment in, in-person services is unlikely to happen in 2021.”

Selected spending patterns, 2020

The onset of the COVID-19 pandemic in 2020 profoundly affected spending behavior.

Stay-at-home orders affected expenditures for retail outlets, entertainment venues, and even transportation providers, as those working from home ceased

Some highlights of expenditure changes include:

–Spending on apparel and services decreased 23.8 percent over this period. The decrease was driven by large
decreases in all apparel and services items. The largest decrease in spending was in men and boys’
apparel (-27.1 percent) followed by footwear (-25.1 percent).

—Alcoholic beverage expenditures dropped 17.4 percent in 2020, after a 0.7-percent decrease in 2019.
With bars and restaurants closed or restricted, the decrease was driven by alcohol away from home spending, down 43.9 percent, which was offset by an increase in alcohol at home spending, up 4.5 percent.

Some of the change was due to a substitution of alcohol at home for alcohol away from home spending, as consumers curtailed visits to restaurants and similar venues during the pandemic.

–Cash contributions were up 14.4 percent in 2020, after a 5.7-percent increase in 2019. The cash contributions
category includes cash contributed to persons or organizations outside the consumer unit, including alimony and
child support payments; care of students away from home; and contributions to religious, educational, charitable,
or political organizations.

–Spending on food decreased 10.4 percent, again driven by food away from home spending, down 32.6 percent,. This was offset by an increase in food at home spending, up 6.4 percent. Some of the change was again due to a substitution of food at home for food away from home spending, made fewer visits to
restaurants and similar venues during the pandemic.

–Transportation expenditures decreased 8.5 percent in 2020.
This decrease was largely driven by public and other transportation spending and gasoline, other fuel, and motor oil. The 66.3-percent decline in public and other transportation spending was the largest percentage decrease among all transportation categories, followed by a 25.1-percent decline
in gasoline, other fuels, and motor oil.

Average expenditures for vehicle purchases (net outlay) were up 2.9 percent. Vehicle purchase (net outlays) includes the purchase price minus trade-in value on new and used domestic and imported cars and trucks and other vehicles, including motorcycles and private planes.

–Entertainment expenditures decreased 5.8 percent in 2020.
The pandemic effect caused a 51.7-percent consumer spending decline for fees and admissions, citing movies theaters and all live entertainment. Likewise, his was offset by a 48.8-percent increase in other entertainment supplies, equipment, and services expenditures and, with many children at home full-time, a 21.4-percent increase in toys, hobbies, and playground equipment expenditures.

Housing expenditures increased 3.5 percent in 2020.
Renters stopped spending while homeowners spent more not just to improve their homes since they were spending more time there, but on increased mortgage, upkeep and tax expenses.

Expenditures on owned dwellings were up 9.9 percent, while expenditures on rented dwellings were down 0.5 percent. The increase in owned dwelling expenditures is due to increases in mortgage interest and charges (+7.3 percent), property taxes (+9.0 percent), and maintenance, repairs, insurance, other expenses (+14.8 percent).

–Personal insurance and pensions spending increased 1.1 percent in 2020, compared to a decrease of 1.8 percent in 2019.
This was driven by a 1.7-percent increase in contributions to pensions and Social Security.

–Healthcare expenditures were down 0.3 percent in 2020, following a 4.5-percent increase in 2019. The largest component
of healthcare, health insurance, was up 3.9 percent, following a 3.6-percent increase in the preceding year.
Expenditures on medical supplies (-12.4 percent) and medical services (-12.2 percent) both decreased.

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