Consumer Spending, and the Rest of the Economy: What Seems to be Happening, What People Think is Happening, and What’s Really Happening

It’s strange, or maybe it isn’t, that on a topic with so many high-quality facts regularly issued, viewpoints and conclusions should differ so much.  Maybe that’s a result of many members of one party, and the great majority of the other, chucking well-documented ideas they think are bogus or otherwise conflict with their worldviews.

With that, what has been written this quarter about the title matters?

In MarketWatch on October 11^th, Barbara Kollmeyer made the mildest claim here: “’Not missing it’:  Some consumers will never go back to their pre-pandemic spending habits, research predicts.”  She cited a European Central Bank working paper, with data collected in middle and late summer, that “many households that cut spending on products and services because of lockdown experiences had “permanently altered their preferences,”” mostly people finding that lower consumption rates seemed fine to them.  The areas of continued reduction Kollmeyer named were travel, public transportation, restaurants and bars, and brick-and-mortar stores in general. 

On the other hand, on this side of the Atlantic only one week later, Emma Cosgrove wrote in Business Insider that “America isn’t running out of everything just because of a supply-chain crisis.  America is running out of everything because Americans are buying so much stuff.”  One cause of our elevated inflation rate has been the basic economic situation of demand outstripping supply, with both reasons in this article’s title pertinent.  Cosgrove cited the National Retail Federation as claiming that our citizens “are buying everything they can get their hands on,” and that the inventory to sales ratio is the lowest since 2011, “which indicates that we’re low on stuff,” in turn “because sales have gone completely nuts.”  Over the past two years, retail volume has risen 8% and 14.5%.  At press time, “supply-chain professionals” were “chipping away at the backlog container by container,” which has improved since, but, per Cosgrove, as a clogged bathtub won’t drain quickly if water pours in, the backup won’t ease all that quickly.

On November 6^th, Neil Irwin announced in The New York Times that “Americans Are Flush With Cash and Jobs.  They Also Think the Economy is Awful.”  Although “Americans are sitting on piles of cash; they have $2.3 trillion more in savings in the last 19 months than would have been expected in the prepandemic path,” and jobs of some sort are plentiful, they are worrying more about inflation.  An October Gallup poll showed 68% considering the economy to be worsening.  Surprisingly, it is no more a partisan issue than it was about ten years ago. 

Americans may be spending a lot in general, but “Many consumers are holding off on making big purchases.  That’s a good sign” (Peter Coy, The New York Times, November 12^th).  A graph here showed the share of survey respondents “saying now is a good time to buy” diving for “large household goods,” houses, and cars right when inflation jumped in late spring, and largely continuing to drop ever since.  This effect will hurt employment in related areas, and may not level off when the inflation rate does.

Next, Paul Krugman’s “How Is the U.S. Economy Doing?,” on December 9^th in the same newspaper, was a response to negative views of the last Employment Situation Summary, in which net new nonfarm payroll positions came in at less than half of projections but other items, from the household survey component, were favorable.  I published here an almost identical view on the report’s December 3^rd release date, and Krugman added that “the employment rate among prime-age adults, a key measure of labor market health, is beginning to approach prepandemic levels” and “in many ways this looks like the best economic recovery in many decades.”  He concluded that “this is actually a very good economy, albeit with some problems.” 

As before, though, not everyone agrees, as pointed up by Jim Tankersley in the December 10^th “How’s the Economy?  Biden Sees a Boom.  Many Americans Don’t,” also in the New York Times.  White House communications director Kate Bedingfield took it further with “every economic indicator shows an economy which is growing,” but acknowledged that “when people experience a higher price at the grocery store or at the gas pump that has an impact on their budget.”  Inflation in particular, “underestimated” by the administration, has dominated numerous views, and Biden’s opinion that “I think it’s the peak of the crisis” is not everyone’s.  It seems clear that, per a University of Massachusetts at Amherst economist, “the lowest-paid 70 percent of American workers have seen wage increases over the last two years even after accounting for inflation,” but that probably does not apply to as many in higher brackets.

 So how is the American economy really doing?  Krugman has it.  Although plenty are not as prosperous as six months ago, we are overall in good shape and continuing to improve.  Inflation should top off soon, and the number of jobs, with generally high consumer demand and supply-chain improvement, should continue to comfortably outstrip the monthly 60,000 or so we need for population growth.  The true nature of the Omicron Covid-19 variant is still unknown, but data creeping in suggests higher contagion with lower infection severity.  Vaccination rates keep increasing, headed by, per the New York Times, 88% of those 65 and older now fully dosed, and with the total number of American cases now over 50 million we can forecast lower numbers there.  There is a real chance of a relapse before the 2022 midterm elections, and we can and will argue more then, but, for the moment, we should give our financial system a bipartisan thumbs up.