Covid-19 triggered a boom in goods demand, but how long will it last? We examine exclusive shipping data to peek into the future. Consult the new, monthly Flexport Post-Covid Indicator to see how demand could shift in the coming months.
The Methodology: The Flexport Post-Covid Indicator is based on an analysis of correlations between detailed shipping data and national consumption behavior. As one would expect, given how goods move, the closest correlations are between shipping flows in a month and consumption a bit later. Using the estimated model, we are able to look at more recent shipping data and forecast the consumption patterns that are likely to follow.
Explore potential scenarios, all derived from data and updated regularly, to prepare your company for what’s ahead. Here’s the first Flexport Post-Covid Indicator, for the month of June.
The big prediction: June will see a substantial goods share drop from current demand. But that doesn’t necessarily equal a return toward pre-Covid patterns.
For context, think about how we forecast the weather. If we wanted to know if it would rain in Chicago, it helps to know if a storm front is sweeping across Nebraska.
It’s not definitive—fronts can speed up, slow down, or break apart—but there is important information there. We can use that information to make decisions, even if we temper it with a bit of wait-and-see.
The data points for May and June predict how goods demand could change:
Note that the Flexport Post-Covid Indicator normalizes deviations in the share of goods in personal consumption expenditures:
That’s because in the four years leading up to the Covid shock, the share of goods in personal consumption expenditures was remarkably stable, averaging 31.2%. Under the Covid shock, that percentage leapt up roughly 8% by summer 2020.
The value of 100 equates with the average level of deviation seen from June to September 2020—a fairly stable 8.3% above that pre-Covid norm. This means that the indicator is not confined to the 0-100 range.
Additionally, the US Bureau of Economic Analysis (BEA) has only released national data through April 2021, which is why the black line terminates there on the graph.
We refer to the BEA data for its percentages of share of goods in personal consumption expenditures—that is, how much consumers spend on goods versus services—and forecast what comes next.
Typically, we’d get forecasting guidance by looking at past consumer behavior. But Covid-19 created an unparalleled disruption in consumption and trade—in both breadth and volume.
We don’t have any comparable episodes in history to help guide us, so our predictions are narrower.
But in this case, many of the goods that Americans ultimately consume are first shipped through the global logistics system. Watching how those shipments change can give advance clues about upcoming shifts in consumption.
Flexport data matches and extends the BEA data, which you can see in the red line on the graph.
That June value may or may not be lasting. We see in the BEA data that there was a similar partial let-up in the fall of 2020; that dip only served as a precursor to a new surge.
But it does mean a return to pre-Covid consumption patterns has yet to take place.
The chart below shows the stark shift from consumption of services to consumption of goods, beginning at the onset of the pandemic.
Let's call our attention back to the shares of goods and services in personal consumption expenditures. Shares had tended to stay stable over time. The graph shows percentage deviations from a 4-year average.
For over a year prior to the onset of the pandemic, those deviations in shares of goods were on the order of 1%. After the pandemic shock, we saw a surge in the share of goods consumption, with deviations of 10% or more.
The rush for goods has been a huge boon to some companies, but it’s also strained the shipping industry to the point of a capacity crisis, now bottlenecking entire industries. Investors and executives may see mixed signals and wonder how to best design strategies.
As Covid scenarios evolve, most companies and analysts are banking on one of two plausible, yet contradictory stories about personal consumption expenditures: Consumers revert to their pre-Covid behavior or they keep up the goods-buying habits they honed during Covid.
But the story may not unfold into an either-or scenario. Instead, change may come incrementally, month by month, or change, then stabilize, then change again. Or we may never go back to the way we were.
We don’t know what will occur yet, because of the magnitude and unusualness of the situation. The patterns we’re uncovering now are history in the making.
As we move beyond the pandemic economic shock, the future of goods demand is still up for grabs. We’ll keep updating the Flexport Post-Covid Indicator as new data comes in.
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