Consumers Are Back Out Spending, Driving The Recovery

Households increased spending in May on services that they shunned earlier in the pandemic, helping position the economic recovery for a strong summer as more businesses fully reopen and consumers unleash pent-up demand.

Spending was flat last month as consumers cut back on purchases of big-ticket items and rotated more of their money toward in-person services. Still, this spring shaped up to be a solid one for spending: April expenditures were upwardly revised to a 0.9% increase from a previously reported 0.5% rise. Overall spending in May was also well above the same month a year ago, during widespread pandemic-related shutdowns.

Higher prices and product shortages likely hurt sales for some goods such as autos last month. Consumer demand is also weakening for some items—such as household appliances and furniture—that people bought during the pandemic while many stores and restaurants were closed. Economists expect Americans to step up spending on travel, restaurants and other services this summer—while continuing to spend less on goods as states and cities lift restrictions.

“Overall consumers are still well positioned to attack the summer with a lot of enthusiasm,” said Gregory Daco, chief U.S. economist at Oxford Economics. “We have households that have a strong itch to spend, they have the means to do so and they have fewer and fewer health reasons not to indulge.”

Stronger demand is helping drive up prices, with supply lagging for many products and employers struggling to find available workers to fill openings. The core personal-consumption expenditures price index, which excludes often volatile food and energy items, rose 0.5% in May from a month earlier and 3.4% from a year earlier, the fastest pace since 1992.

Check out the full article from Wall Street Journal here.