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Consumer spending on goods in May rose 20 percent from February 2020’s amount, with spending on services only 1 percent below pre-shutdown levels.
With inflation on the rise, overall spending maintained April’s volume, when consumers paid 0.9 percent more for goods and services than in March.
Spending on recreation grew 3.5 percent last month, the U.S. commerce department said, and airlines reported a growing number of bookings for summer months.
As with the housing market and the rich getting richer while the middle class shrinks, high-income households are driving the spending gains, Jonathan Silver, CEO of consumer data firm Affinity Solutions, told The Wall Street Journal. They have the income and stored savings to spend on services and experiences not available during the shutdown, he explained.
Households with annual incomes greater than $200,000 spent 16 percent more on restaurant meals last month than a year previous; those with incomes from $31,000 to $60,000 spent 5 percent more dining out, according to Silver’s firm.
With the COVID War in the states winding down and no longer mandated to “stay home, stay safe,” consumers are spending less on furniture, appliances, and other big-ticket items that they bought during the lockdowns and are shifting their spending to services and experiences.
Spending in the service economy grew 0.7 percent in May from April, a respectable amount but slower than the surge of service spending fueled by the stimulus checks delivered in late winter and early spring.
“Consumers are well-positioned to attack the summer with a lot of enthusiasm,” Gregory Daco, chief U.S. economist at Oxford Economics, told the WSJ. (See “Retail Shopping to Grow by Double Digits This Year,” Trends Journal, 15 June, 2021.)
“Households have a strong itch to spend, they have the means to do so, and they have fewer health reasons not to indulge,” he said.
Consumer spending will rise 9 percent this year over last, the largest 12-month gain since 1946, Oxford predicted.
TREND FORECAST: The rise in consumer spending comes as no surprise to Trends Journal subscribers. We had long forecast that as interest rates remained near zero and the federal government pumped trillions into the economy, there would be “The Biden Bounce.”
While spending will continue to rise, it will grow moderately… until the Federal Reserve raises interest rates and equity markets crash. Indeed, well aware of the financial pressures when rates rise, the Feds will do all they can to keep rates low for as long as they can.