Consumer Spending Increases 12% in Q2 2021

Consumer Spending Statistics and Current Trends

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Consumer spending, also known as personal consumption expenditures (PCE), increased 12% in the second quarter (Q2) of 2021, according to the second-quarter gross domestic product revised estimate. This follows an increase in PCE for the first quarter (11.4%). PCE refers to the value of the goods and services bought for or by residents of the United States.

The Bureau of Economic Analysis (BEA) reports consumer spending at an annualized rate to compare it with gross domestic product (GDP). GDP for Q2 showed that productivity increased by 6.7%. This follows a first-quarter GDP increase of 6.3%. Consumer spending statistics help provide a picture of the financial health of the economy at large so businesses that monitor them can better predict consumer behavior.

PCE was $15.7 trillion in the second quarter. On an annualized basis, that's a 12% increase from the first quarter, according to the BEA.

Spending on goods increased by 13%. That includes spending on durable goods like automobiles, which increased 11.6% from Q1. Spending on nondurable goods, like groceries, increased by 13.9%. Spending on services, like hair salons, increased by 11.5%.

Key Takeaways

  • Consumer spending, also known as personal consumption expenditures (PCE), increased 12% in the second quarter of 2021, following an increase of 11.4% in the first quarter of 2021.
  • Spending on durable goods decreased by 11.6% during this time.
  • Spending increased in the first quarter as governments allowed businesses to reopen after closing due to the COVID-19 pandemic and vaccinations increased.

History of Consumer Spending

Strong consumer spending is the main reason the GDP growth rate has been within a healthy range of 2% to 3% since the Great Recession (not counting the pandemic induced short recession in 2020). As the table below shows, consumer spending has remained close to that healthy range since 2010, following the financial crisis.

Retail Sales Increase as the Economy Grows

According to Census Bureau data, U.S. retail sales in the second quarter of 2021 increased 28.2% from the same quarter in 2020. That annualized rate is well above the 3% growth rate that's viewed as desirable. Second-quarter online sales increased 9.1% from the same quarter in 2020.

For July 2021, preliminary estimates of seasonally adjusted retail sales declined 1.1% from June. While there was an overall decrease in retail sales, gas stations and miscellaneous store retailers saw gains through the month.

Sales were up 15.8% from June a year ago, and total sales from May through July were up 20.6% from the same period a year ago. Compared to 2020, this increase is no surprise, given that many businesses were closed due to the pandemic.

The shift to online shopping during the pandemic accelerated a long-term trend. For example, online sales for Cyber Monday in 2020 grew by 15.1% over the previous year, according to Adobe data, making it the largest online shopping day in U.S. history.

Consumer spending continues to shift toward online shopping versus shopping in brick-and-mortar stores. This is likely to keep increasing as the pandemic continues and more retailers shift to online platforms.

How Retailers Have Responded to Changing Consumer Expectations

Retailers now have to contend with shoppers who expect high value combined with low prices. As a result, Amazon and other online stores have stolen business from brick-and-mortar stores. Companies that depend exclusively on a low-cost or high-value competitive advantage have fallen behind. Instead, the retailers today must provide both.

Those companies that don't strike the right balance between value and price could lose their customers permanently. 

Factors That Affect Consumer Spending

For business owners looking for ways to appeal to consumers, three trends should factor into their planning.

Consumer Debt

Cars, mortgages, credit card balances, and student loans make up a large portion of consumer debt. Spending drops when consumers take on too much debt or when they lose jobs based on economic circumstances. When the economy recovers, the unemployment rate goes down, and consumers have more money to spend.

Stagnant Wages

Average income levels have not kept pace with growth in either the stock market or GDP. That's partly because jobs have been outsourced to cheaper labor in China, India, and low-wage manufacturing in Asia. Despite changes to the North American Free Trade Agreement and other free trade agreements, some manufacturers may still cut jobs locally and hire abroad. Employees who lose jobs may have to cut back on spending and increase their savings to make up for income shortfalls.

Consumer Confidence

Many analysts look to the Consumer Confidence Index, a measure of how Americans feel about the economy, to predict how likely it is that consumers will spend. People are more likely to shop when they feel confident about their ability to get a more lucrative job. Until the 2020 recession, numbers were inching higher. In August 2021, consumer confidence hit its lowest level since April 2020.

Why Consumer Spending Matters

Because consumer spending is such a large component of GDP, it is a leading economic indicator. If spending is flat, economic growth may also be anemic, which can increase recession fears. Beyond forecasting the economy, consumer spending statistics also help retailers evolve in a way that appeals to consumers so that they can remain in business.