Introducing the Flexport Consumption Forecast

What will the holiday season look like? That’s a regular question for anyone who’s involved in the production, transport, or retail business, given the importance of the fourth quarter to annual sales. It’s an even more challenging question this year, as the unusual economic effects of the pandemic linger on and reliable past consumption patterns are set aside by shoppers.

Flexport Research has been tracking and forecasting this extraordinary time through releases such as the Post-Covid Indicators. These indicators have tracked the remarkable swing in personal consumption away from services and toward goods. They also currently show durables consumption remaining strong relative to services, while nondurables consumption is moving quickly back to a pre-Covid ratio with services.

But what if you don’t want to worry about ratios? What if you want a forecast of what will happen next with the level of durables consumption? The level of nondurables? Or even subcategories like seasonal goods, or apparel? For that, we introduce the Flexport Consumption Forecast.

A forecast based on real-time data is better and more complete than one based solely on historical data. To that end, and to address the questions raised from an economics and logistics perspective, we’ve created the Flexport Consumption Forecast. This corresponds to the U.S. Bureau of Economic Analysis’s Personal Consumption Expenditure figures.

A preview of the results: Despite mounting talk of recession, we’re not yet seeing it in the data. Personal consumption looks likely to hold fairly steady through Q4 of 2022.

In short, the Flexport Consumption Forecast (FCF) shows the outlook for real (i.e. inflation-adjusted) Personal Consumption Expenditures on a seasonally adjusted basis.

The total forecast—including goods and services—is set to reach $14,418 billion in December on a seasonally adjusted, annual rate (SAAR) basis. That would equate to a 1.1% increase for Q4’22 in aggregate versus a year earlier. The long-feared slump in consumer spending is therefore likely to remain some way off.

Durable Growth – Overview of the Flexport Consumption Forecast

The Flexport Consumption Forecast calls for personal consumption expenditures to increase moderately from around 2% from August 2022 levels to the end of Q4’22. Spending on durable goods is expected to average 0.3% per month with higher recreational goods spending offsetting lower autos consumption. Nondurables spending will decline slightly at 0.1% per month.

Over the rest of 2022, spending on durable goods is expected to grow fastest, with an average 0.3% growth monthly in October, November, and December. That leaves the Q4’22 figure 1.2% higher than a year earlier.

Nondurable goods, by contrast, are expected to decline slightly over the next 4 months with a fall of 0.1% per month sequentially through the month of December. Spending on nondurables in December will therefore be lower than a year earlier by 1.9% in Q4’22 on average.

Services will grow slowly on a sequential basis at 0.3% per month on average in Q4’22. However, the prior, pandemic-era drop in services spending means that the December figure will actually be 3.4% higher than a year earlier.

Consumption in the automotive sector is expected to decline by 0.2% per month in Q4’22, which will leave auto sales 2.0% lower than the 4th quarter of last year. Spending includes new vehicles, used vehicles, and automotive components.

Household durables include furnishings and household appliances. Consumption growth here is forecast to increase by an average of 0.1% sequentially each month in Q4’22. That would, nonetheless, leave consumption 0.6% lower in Q4’22 than a year earlier.

Spending on the home received a significant flip during the pandemic as consumers started to work from home (desks and Zoom-friendly shelves) and spend more leisure time there (sofas and quiet washing machines). Consumption peaked in March 2021 at 42.5% above January 2019 levels. Even after a more recent slowdown, spending in December 2022 is still expected to be 29.6% above the January 2019 level.

While the Flexport Consumption Forecast shows data in real, i.e. inflation-adjusted, terms it is worth noting that many retailers have indicated that inventory levels have been higher than they are comfortable with. That’s driven many to consider price reductions to try and boost demand.

Recreational spending includes electronics, sports equipment, books, and instruments. The segment has also been a beneficiary of pandemic-era spending. Momentum looks set to continue, with consumption forecast to increase by 0.74% on average each month in Q4’22, resulting in the total for the quarter being 8.2% higher than a year earlier. The sector is discussed in more detail later in the report.

Less Food, More Clothes – Nondurable Goods Consumption

As noted already, the sequential growth in durables each month in Q4’22 is expected to average just 0.3%.

The main reason for the slow growth in nondurables is an expected decline in the consumption of food and beverages. During the depths of the pandemic, spending on food in the home surged as consumers were unable to go to restaurants or eat at work. As consumer habits continue to return to normal over the next few months, food consumption is expected to increase slightly by an average of 0.1% per month in Q4’22 but still average 5.1% lower versus a year earlier.

Consumption of fuel, primarily gasoline, saw a reverse trend during the pandemic. A marked reduction in fuel consumption, reaching a 36% drop in May 2020 versus January 2019, reflected a pause in travel during the COVID-19 lockdowns. A return to travel has led to a subsequent recovery.

The outlook for real spending on fuel can be complicated by the price of gasoline. Elevated oil prices over the past summer fed through to gasoline, which may have explained a dip in spending during the traditional summer driving season.

During Q4’22, fuel consumption is expected to stagnate, with Q4’22 5.9% lower than a year earlier and in line with the pre-pandemic period.

Apparel spending, as detailed later in the report, has also varied significantly during the pandemic. That partly reflected the initial pandemic-era store closures and the shift to casual rather than office spending. During Q4’22, consumption is expected to increase by 0.2% per month on average, resulting in a 0.8% year-over-year increase for the quarter overall.

Users’ Guide

What is the Flexport Consumption Forecast and how should it be used?

As seasonally-adjusted real numbers, these forecasts provide a guide to whether we will see a boom or a bust. The detailed forecasts indicate whether different sectors are moving in parallel or diverging. Because they are seasonally adjusted, this is not a good guide to the raw volume of goods being purchased. It’s normal for more goods to be purchased in Q4, and it’s already baked in.

What products does it cover?

This covers everything in the Personal Consumption Expenditure report. At a broad level, that means services, durable goods (those that are meant to last three years or more), and nondurable goods. But we go further than that. For the goods categories we look at a number of subcategories, providing a new level of detail not generally seen in consumption forecasts.

Now will you rest on your laurels?

Nope. We plan to turn this out monthly. Unlike this initial holiday preview, it will generally come out in the middle of the month and cover the next four months beyond what the government has reported. If that sounds a little convoluted, it’s because we will only see October numbers at the end of November, so an updated forecast of October would still have value, even in the middle of next month.

Methodology

There are two main ways economists predict future numbers. One is to solve a big structural model of the economy. The other is to look carefully at how numbers follow trends and project those trends out in sophisticated ways. The Flexport Consumption Forecast follows the latter approach but enhances this “time series” method with insights gleaned from Flexport data. There is generally a relationship between what ships in September and what people consume in November. Our methodology takes advantage of that correlation to produce a more accurate forecast. These are forecasts and there will be misses. But those misses are likely to be smaller than they would be without Flexport data.