Key Takeaways:

• Spending of $13.7 trillion is more than $400 billion ahead of Q4 2019.
• Healthcare leads all categories, but barely exceeds Housing & Utilities.
• Almost all the spending gains since Q4 2019 are for goods, while services continue to lag.

By Manuel Gutierrez, Consulting Economist to NKBA

Consumer spending on goods and services convincingly smashed a record in the 2^nd quarter of 2021, at $13.66 trillion — or $411 billion above the $13.2 trillion spent in the last quarter of 2019 (Figure 1). It’s also the first time since the start of the pandemic that spending has rebounded to pre-COVID-19 levels and beyond.

In the first two quarters of last year, consumer spending collapsed, with the second quarter taking the brunt of the drop. It fell by nearly 10% in Q2 to $11.8 trillion.

Consumer spending fell across all product and service categories, with only three notable exceptions: Recreational Goods & Vehicles(RVs in Figure 2), Housing & Utilities, and Motor Vehicles and Parts.

With a record-setting $13.7 trillion, consumer spending for goods and services has finally rebounded to surpass pre-pandemic levels from Q4 2019.

Spending for Recreational Goods & Vehicles rose by 8.6% in the 2^ndquarter of 2020 to $656 billion and has continued to increase to the current $814 billion, up an incredible 37% compared to Q4 2019.

Consumers spent nearly $686 billion in Motor Vehicles and Parts in Q2, while Housing & Utilities services rose 1.1% between the 1^st and 2^nd quarters of last year despite the economic shutdown. This sector is the second-highest in consumer spending, with 15.7% of the total. The category includes items such as rental costs, imputed value of owner-occupied housing, and housing utilities.

Among the other categories where consumers are spending less this year are Health Care, which captured the most consumer dollars. The current spend is nearly $2.18 trillion, just 1.6% more than the $2.14 trillion being spent on Housing & Utilities. This is a sharp contrast to 2019 and earlier, when consumer spending on health care was at least 7% more than on housing.

The decline in health care spending is evident across all its services, although “visits to a dentist” had the biggest drop for the sector, falling by 23% in 2020 compared to the prior year — understandable, given pandemic concerns. In contrast, consumer visits to hospitals and nursing homes were down by 9.4%.

Figure 2 displays second-quarter consumer spending for all categories, where the third-highest consumer spending is for Other Nondurable goods. This category is a broad one that includes a disparate range of products accounting for 9.5% of the total. Included are subcategories like games, pet supplies and other items that individually are relatively small and not easily classified into identifiable groups.

Consumers spent $1.11 trillion on food and beverages, 8.1% of the total and fourth-highest on the list.

Throughout last year, major shifts in consumer spending occurred. This is shown in Figure 3, which displays both the dollar and percent change in spending by category since the end of 2019.

Broadly speaking, consumers increased spending on “goods” at the expense of “services,” unquestionably driven by the need to avoid contact with others.

Virtually all the categories with greater spending, shown by the light blue bars, represent “goods.” The only exceptions are Financial Services, with a gain of 4% from 2019, and Housing & Utilities, up by just 1%. Not surprisingly, both of these economic activities require little or no human contact.

Spending for recreational vehicles and equipment is up 37% from the fourth quarter of 2019. This is significantly higher than the 3.1% increase in total consumer spending. The net result is that RVs’ share of spending has increased by 1.5 percentage points.

Autos (Motor Vehicles & Parts), are up by 28% over the last six quarters, gaining 1 point of spending share.

Most categories with decreased spending since Q4 2019 are services, like Hospitality, Recreation Services and Transportation Services. Gasoline, off by 3.6%, is the only goods category that fell.

The question remains whether this changing spending pattern is permanent, or whether consumers will gradually return to their pre-2020 spending behavior.

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