You can see why some retail stocks don’t like the switch from goods to services.
By Wolf Richter for WOLF STREET.
Americans outspent inflation by a good margin in April. “Real” spending on goods — what consumers buy at retailers, adjusted for inflation — rose during the month, but was below the peak of last year’s miracle stimulus. “Real” spending on services (such as health care, travel, entertainment, etc., adjusted for inflation) jumped, having collapsed during the pandemic, as the shift in spending from goods to services continues in a sign that the distorted stimulus – the economy is normalizing. Expenditure on services is the most important, since it represents more than 60% of total consumer spending.
“Real” spending increased, approaching the pre-pandemic trend.
Inflation-adjusted spending on goods and services jumped 0.7% in April from March, to a new record high, and rose 2.8% from the miracle stimulus of April last year, the Bureau of Economic Analysis reported today. . It is now approaching the pre-pandemic trend, as the consumer economy is normalizing to pre-pandemic growth rates, all adjusted for inflation:
“Real” spending on services jumped, but there is still a long way to go.
Inflation-adjusted spending on services (health, housing, education, airfare, lodging, car rentals, entertainment and sporting events, haircuts, repairs, etc.) increased 0.5% in April from March and a 5.9% year-on-year. year.
Real spending on services finally surpassed pre-pandemic levels and set a new record, following the collapse in spending on discretionary services during the pandemic (such as airfare, discretionary health services such as dentists and elective surgery, haircuts, etc.). It remains well below the pre-pandemic trend (green line), but is on track to normalize as spending returns from goods to services.
This sharp increase in “real” spending on services in recent months (+5.9% year-over-year) is what has been driving consumer spending, even as spending on goods has fallen from peaks driven by for the stimulus a year ago.
Spending on services matters: In April, it accounted for 61.4% of total consumer spending, but it’s still below the pre-pandemic average of more than 64%. This is an indication that spending on services, as it normalizes, will continue to grow at a disproportionate rate (so watch out for services CPI inflation, which is starting to eat everyone’s lunch).
Real spending on nondurable goods is slowly normalizing to nosebleed levels.
Inflation-adjusted spending on non-durable goods, dominated by food, fuel and household items, rose 0.2% in the month but is down 0.5% since the peak of the miracle stimulus in April a year ago.
Even after the year-on-year drop, consumer spending on non-durable goods remains at nosebleed levels, up 12% from April 2019, and well above the pre-pandemic trend (green line). But it is on the way to gradually normalize and return to the pre-pandemic trend:
Real spending on durable goods surges month-on-month.
So, just to give another surprise about “exhausted” American consumers or whatever, inflation-adjusted spending on durable goods rose 2.3% for the month, just when you thought consumers had bought everything they needed, and were going to go back
Compared to the peak of the stimulus miracle in April of last year, real spending on durable goods fell 6.5%. Spending remains at exorbitant levels, 29% more than in April 2019, and continues to contribute to shortages and price spikes for some of these products, and to the huge trade deficit, as many of these products are manufactured in other countries or contain components that are manufactured in other countries.
But you can see the uneven normalization, the regression towards the pre-pandemic mean:
“Real” income below pre-pandemic trend.
Personal income adjusted for inflation from all sources it fell 3.5% from April a year ago, when the stimulus money was still coming in, but it’s up a bit since March (purple). This includes income from wages and salaries, dividends, interest, rent, farms, businesses, and government transfer payments (stimulus, Social Security, unemployment, welfare, etc.), but does not include capital gains. Late last year, when inflation was rising, real income fell below the pre-pandemic trend and has stayed there. It is up just 6.0% since April 2019.
Inflation Adjusted Rent no transfer payments it increased 2.0% compared to the previous year and 0.3% in April compared to March (red line). It fell below the pre-pandemic trend at the start of the pandemic. After a partial recovery, it lost more ground since late last year due to rising inflation and has been broadly flat since November.
“Real” per capita disposable income looks worse.
Earnings data above was for aggregate income, for all consumers combined, where income growth is also driven by increased employment and population growth.
Here is the per capita level of “real” disposable income, that is, after-tax income per person from all sources, which was flat for the month and decreased 6.4% from a year earlier, and increased only a miniscule 1.8% since April 2019. And it is well below pre-pandemic trends:
The substantial rise in inflation-adjusted spending and the bleak picture of inflation-adjusted income (which does not include capital gains) show that consumers, not all of them but enough to move the needle, are still full of money from the millions of stimulus programs and with money they can draw from the rise in real estate, stock and cryptocurrency prices, where consumers have collectively made trillions of dollars, some of which they’ve already spent, and some of which is They have faded in recent sales, and some of the ones they still sit on and will continue to spend.
But consumer borrowing to spend, well… not that attractive.
Unadjusted for inflation: Credit card balances, excluding other revolving loans like personal loans, shrank to $840 billion in the first quarter, from the fourth quarter, still down from the first quarter of 2020 and the first quarter of 2019, and returned to where they had been in the first quarter of 2008, despite 13 years. of population growth and CPI inflation of 37% (red line).
Other consumer loans, such as personal loans and payday loans, at $450 billion, were also below pre-financial crisis highs, despite 13 years of population growth and CPI inflation of 37% (green line).
To see my detailed analysis of consumer loans in all categories, delinquencies, foreclosures, third party collections and bankruptcies, read… bankruptcies
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