These 8 charts explain the strength of the post-Covid recovery
Few would have predicted that Americans would earn and spend more money now than before the pandemic. Yet that is exactly what is happening, according to the latest figures from the Bureau of Economic Analysis. Mass vaccination, trillion dollars in government assistanceand the ingenuity of the private sector have generated an unprecedented recovery to cope with the unprecedented slowdown that hit last year.
The result is that many indicators show an economy that is fully recovered or that is operating at significantly higher levels than before. None of this should minimize the hardships of the roughly 10 million Americans who lost their jobs at the start of the pandemic and remain underemployed, but this is encouraging news for anyone concerned about sustainability and sustainability. strength of the recovery, especially after the disappointing April jobs report. .
The most prominent feature of the latest data is that April was the second month in a row that spending on goods and services was as high as expected given the amount Americans earned after-tax by working, investing and by receiving retirement benefits. but before reporting on the extraordinary programs created by the Cares Act, the Coronavirus Relief Bill and the American Rescue Plan Act.
For the first time since January 2020, the average consumer has held nothing back due to business closings or fears of catching the virus. This is why the savings rate has already returned to pre-pandemic levels after subtracting the government’s new income support and debt relief programs.
Of course, the real savings rate was much higher than this underlying measure of savings, which is why Americans collectively saved about $ 2.4 trillion more than they otherwise would have. since the start of the pandemic. This “excess savings” could help finance a post-pandemic consumer boom, although much of it has likely gone to the stock and real estate markets rather than the checking accounts of consumers eager to spend.
After all, spending is no longer limited by what’s available for purchase, which is why total consumer spending is already around 5% higher than it was before the pandemic. Spending on durable goods such as cars, appliances, furniture, televisions and exercise equipment remains nearly 40% above pre-pandemic levels. But even the struggling service sector is operating less than 2% below pre-pandemic levels, with total spending increasing 2.1% in March and 1.1% in April.
Americans spent about 4% more money in restaurants in April than before the pandemic on a seasonally adjusted basis, a remarkable turning point given how much the industry has been through. High-frequency data from private sector sources suggests the trend will continue into the summer, which should help the unemployed get back to work, if that’s what they want. But while the total recovery in services is strong, there are still serious pockets of weakness, including dental offices, shows, museums, films and hotels.
Robust spending is supported primarily by soaring wages, salaries and benefits for the roughly 150 million Americans who remain employed. Total U.S. spending on employee compensation in April was over 4% from February 2020, even with fewer workers on payrolls. This is unlike any other recession on record, especially the global financial crisis, which has left incomes depressed for years. This is another encouraging sign that bodes well for the sales prospects of any business.
Small businesses and the self-employed are also sharing in the benefits of the recovery. Even after subtracting the massive help provided by paycheck protection program repayable loans, the BEA’s “homeowners income” measure ultimately reverted to what it was on the eve of the pandemic.
Finally, a note on inflation. The personal consumption expenditure price index released by the BEA rose 3.6% in April from the previous year – the largest 12-month increase since 2008. Before the pandemic, PCE inflation was slightly above 1.8% on an annual basis. The acceleration is largely a function of the timing, plus a few specific features associated with the pandemic and the reopening.
Of the total acceleration of 1.8 percentage points in the inflation rate, more than 0.8 point can be explained by energy prices. But unless the price of West Texas Intermediate crude oil increases another $ 100 a barrel – after going from minus $ 37 a barrel to positive $ 66 a barrel – that won’t happen again. Another 0.6 percentage point comes from used cars and car rentals, just reflecting the speed of the economic rebound that has surprised automakers and rental companies.
The other reopening categories contributed around 0.2 points to the overall acceleration in inflation as their prices were abnormally depressed last April. Almost everything else – accounting for the vast majority of consumer spending – has wiped out. All of this is consistent with healthy recovery rather than anything more worrying.
Write to Matthew C. Klein at [email protected]