I cannot recall a parallel era to this in terms of economic cross-currents. There are credible arguments on both sides of a lot of key data: Inflation, retail sales, NFP, JOLTs, and NILF. It’s almost as if you are not confused about the economy, then you probably are not paying attention.
I wanted to briefly highlight a fascinating chart courtesy of Invictus that I suspect might explain some of the underlying confusion and challenge in understanding the current state of the economy.
The chart above shows both Goods (blue line) and Services (red line) relative to total personal consumption expenditures. Its priced in billions and shows the past 10 years (Jan 2012=100). If you want to play with the chart yourself, just click the image above and have at it.
Think about this even in light of the inventory shortfall of single-family homes, and the difficulty in finding new cars (or getting used cars at reasonable prices). And still, we see elevated Goods consumption and reduced Services. Note the peak in Goods came long before the current inflation spike.
If we zoom in, you can get a sense of how spending habits have changed post-pandemic:
Let’s look at this in one last context: Percentages of Goods and Services consumption:
That’s the past 5 years (the 10-year version is similar but more difficult to see the recent changes). Note how current economic consumption of Goods & Services has changed: Today, Services consumption is nearly 5% below pre-pandemic levels, while Goods are almost 5% above pre-pandemic levels.
As life begins to normalize — offices re-open, people go on vacations, cars become available — we should see consumption patterns begin to head back toward their prior levels. But I have strong reservations about If & When we are heading all the way back. There is a substantial percentage of people who are never going back to a 9-to-5, Monday to Friday office gig; I am not sure exactly what this might mean to that balance of consumption, but I suspect it is significant.
This is just another one of many cross-currents making it a challenge to understand the current U.S. economy…
Hat tip on the charts to Invictus!
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