January 30, 2023
The Year in Consumption - Flexport Weekly Economic Report
The latest data on US Personal Income and Outlays showed a seasonally-adjusted slowdown at the end of the year. Looking across 2022, however, goods consumption remained fairly stable. Further, there was evidence that consumers have money to keep buying if they choose to.
In Focus - Personal Consumption Expenditures
The latest batch of BEA data for December seemed to herald a slowdown in consumption. With a little perspective, though, the story doesn’t seem quite so clear, or so grim.
In real terms, overall Personal Consumption Expenditures (PCE) fell by 0.3% in December, following a 0.2% fall in November (revised down from flat, as first reported). Looking at the major components, services were unchanged for December; nondurable goods fell by 0.2% in November and 0.4% in December; durables (goods meant to last three years or more) fell even more sharply—down 2.1% in November and 1.6% in December.
If those changes don’t seem to average out to the headline PCE numbers, keep in mind that the categories differ in size. For 2022, services consumption made up 65.8% of PCE; nondurables were 21.6%; and durables were 12.6%. And that percentage for services is actually depressed from its pre-Covid norm.
The chart is meant to put the recent months in a broader context. It normalizes each of the subcategories of PCE so that its December 2021 level is set equal to 100. That makes it easy to see percentage fluctuations throughout the year.
Services consumption continued the steady recovery it has shown after a sharp fall in the spring of 2020. Even the flat performance in December still left it with a respectable 3.3% gain for the year.
While nondurables had a recent peak in October, the variations across the year have been fairly small and the category ended up down 0.8% for the year. Durables had much more notable ups and downs. The previous increases meant that, despite recent declines, durables ended the year up 1.8%.
If we extended the graph back even further, we’d see that both of these goods categories had their pandemic peak in the spring of 2021. Volatile durables consumption peaked 36.5% above pre-pandemic consumption and has subsided 10.6% since. Smoother nondurables peaked up 12.4% above February 2020 and dropped back by only 2.2% as of December 2022.
One key determinant of PCE is the amount of money consumers have to spend. With the December report, we see that real disposable income was down 6.4% from 2021 to 2022. In nominal terms, that involved a drop of $711bn in government social benefits, but only a $102bn drop in disposable personal income. There were other factors as well, but this rebalancing of income included an $863bn increase in wages and salaries.
Looking at monthly trends, real disposable personal income grew every month since June 2022. It was up 0.2% in December. That hasn’t translated directly into PCE growth because the savings rate steadily increased from 2.4% in September to 3.4% in December.
So what does the perspective tell us? That consumption has been fairly stable across the year and that, so far, consumers appear to have the money to keep buying.
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