Flush with savings and subject to fewer pandemic restrictions, American consumers continued to step out of the house in May, purchasing more services and less stuff.
Spending on goods declined 2% while it increased by 0.4% on services, according to a monthly report on personal income and spending from the Bureau of Economic Analysis. People spent more on recreation and dining out as establishments reopened and the Centers for Disease Control lifted its indoor mask mandate for vaccinated people. At the same time, spending was down by 6% for vehicles and parts, which had become more expensive and more scarce over the preceding months.
The changes in goods and services canceled each other out, leaving overall spending essentially flat, while household finances continued to be bolstered by a savings rate of 12.4%—down from 14.5% the month before, but still well above pre-pandemic levels.
“The great consumer spending rotation gathered steam in May as households shunned now-expensive goods in favor of once-familiar services,” said Gregory Daco, an economist at Oxford Economics, in a commentary. “Strong fundamentals continue to underpin consumer spending including an improving health situation,” in addition to healthy household balance sheets and rising employment and wages, he said.
The continued shift from goods to services was the latest indication that people are getting out of the house more as the pandemic wanes. Restaurants hit pre-pandemic sales levels in May, and a record number of drivers plan to hit the road for the Fourth of July holiday. And people are finding a much friendlier job-hunting environment than they have in the recent past, although they worry that all the spending and reopening is causing too much inflation.
The Personal Consumption Expenditure price index minus food and energy, a measure of inflation that is closely watched by officials at the Federal Reserve system as they set monetary policy, was 3.4% higher in May than the same month last year—the largest year-over-year increase since 1992. However, economists took these figures in stride, since the increase is in comparison to May 2020, when the economy was in the midst of its pandemic-induced downturn. Prices other than food and energy rose 0.4% compared to the month before, according to the index, which was less than the 0.5% that economists at Moody’s had anticipated.
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