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For October, both disposable income and real personal consumption expenditures were up. This is not consistent with a rapidly slowing economy, nor do the latest numbers support a restoration of the balance of goods and services consumption to pre-pandemic norms.
In Focus - Personal Consumption Expenditure
There was little sign of an economic slowdown in this week’s data on US October personal income and outlays. Real disposable personal income was up by 0.4% for the month; real personal consumption expenditures were up by 0.5%. Each of those statistics has dropped in only one month out of the last five, and those drops were in the summer.
The components of real personal consumption expenditures were all up, too. Services consumption was up 0.2% for the month. Goods consumption was up a striking 1.1%. That goods number consisted of a 0.3% monthly jump in nondurables consumption and a remarkable 2.7% increase in durable goods consumption.
The chart offers some degree of historical perspective to what has happened to the three components of real personal consumption expenditures. To do so, it normalizes their levels to February 2020, on the eve of the pandemic economic shock. It is worth keeping levels in mind: in October, services accounted for 65.7% of personal consumption expenditures; nondurable goods were 21.6%; durable goods were 12.7%.
The chart goes back to January 2019 to illustrate how wild and different consumption behavior has been during the pandemic era. Prior to the pandemic, the three categories largely moved in parallel, and a 5-10% swing over a year was a very large one.
The consumption story of the pandemic was that services behaved very much as one would expect all consumption to behave after a sharp recession. It fell by almost 20% by April 2020 and then worked its way back to its February 2020 level by October of 2021. In October 2022, it was 3.1% above its February 2020 level.
In contrast, nondurable and durable goods consumption saw extreme swings. Durable goods recovered its pre-shock consumption level by May 2020 and nondurables by June of that year. Durable goods consumption hit a peak of 36.5% above its pre-shock level in March of 2021; nondurables peaked up 12.4% in October and November of 2021.
With goods consumption significantly up and services consumption down, there was significant pressure on supply chains to deliver. Flexport Research has tracked and forecasted this ratio of goods to services with its Post-Covid Indicator. Over the last year, goods and services have shown some signs of rebalancing; services consumption grew by 2.8% while durables grew 2.0% and nondurables fell 1.4%.
This rebalancing could also be seen in price pressures. In March of this year, goods prices had risen 10.6% from the year before and services prices had risen only 4.8%. In the latest report, goods prices had risen 7.2% and services prices were up 5.4%.
While goods consumption levels have dipped from their peaks, they are nowhere near pre-shock levels. In October 2022, nondurable goods consumption was up 10.9% from February 2020 level; durable goods consumption was up 27.6%. In fact, over the last three months, durables consumption grew by 2.6%; nondurables by 1.4%; and services by 0.8%.
If the US economy is pulling back, it’s not yet showing up in consumption numbers.
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