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- Americans won't stop buying stuff.
- Spending on durable goods has soared over the past 18 months, per a new JP Morgan note.
- It's partly because of a new way of life, and in other ways it finally marks a recovery from the Great Recession.
Americans just can't stop shopping.
Since the pandemic hit the US 18 months ago, they've been buying way more stuff than they were in the 2010s. While service spending still dominates the economy, getting double the amount of investment as goods, Americans are just buying so much stuff these days.
It's kind of a problem how much stuff Americans are buying. It's giving the economy a much-needed boost: Spending growth for goods has surpassed pre-pandemic levels with a 25.69% increase from January 2019 to August 2021, a recent Insider calculation of Bureau of Economic Analysis data found. It's the first time in decades that spending on goods has increased so much.
However, consumer habits also are crippling our economy. Americans' record-breaking shopping habits have led to the US running out of all kinds of goods, as Insider's Emma Cosgrove reported.
A year ago, the American shopper was in virtual hibernation and it was anyone's guess when lockdown would end. Now we know they've been spending with a vengeance.
A lot of the goods that Americans are buying are durable, according to a Monday note from JP Morgan's Bruce Kasman, meaning things that will be used for at least three years, such as furniture, cars, and electronics. But why are they buying so many of them?
The bank broke down four driving forces behind Americans' seeming addiction to shopping right now.
The experience economy shut down
With months-long lockdowns and lingering restrictions across the country throughout much of 2020 and the first quarter of 2021, there were little to no services to spend on.
Traditional entertainment spending was down by more than 90% year-over-year as early as May 2020, according to a Bank of America Research note at the time. With limited experiential opportunities, JP Morgan said a little over a year later, Americans diverted their spending power toward durable goods.
As the country slowly reopened, vaccinated consumers began to return to out-of-home activities, with plans to spend extra on experiences like travel and restaurants. Since the spring, Americans have been eating and drinking out more and more. But service spending is recovering more slowly than goods.
Americans are shopping for a new kind of homebound life
Shopping for goods remains elevated partly because Americans are "reconfiguring life for the pandemic era," per JP Morgan. This required upfront investments in everything from personal tech for a work-from-home set-up to cars for avoiding mass transit.
It's a similar story for home goods. A year inside the homebody economy and a flurry of homebuying led to a spike in spending on private or homebound matters. Americans bought everything from furniture and appliances for home improvement projects to loungewear and kitchen necessities as they worked and cooked from home. A McKinsey report from May found that consumers intend to continue the investments they made in their home life post-pandemic.
Furniture and home improvement spending are up by 36% and 35%, respectively for the week ending October 23, compared to the same week two years ago, per a Bank of America Research note by a team led by economist Michelle Meyer.
There were stimulus checks to blow
Each of the three stimulus checks passed from April 2020 through March 2021 led to a big jump in goods spending. JP Morgan said
The checks and the decline in discretionary spending that accompanied the pandemic led to Americans holding $2.6 trillion in excess savings as of mid-April, per Moody's Analytics. In May, they were spending more than they did before the pandemic, Insider's Ben Winck reported, citing Visa data.
While many used their stimulus checks as financial assistance, like paying off debt, they also likely used them to invest in the goods they needed for a lockdown lifestyle.
Goods spending is finally catching up after a post-Great Recession slump
There's also the fact that spending on durable goods had been depressed since the 2008 financial crisis relative to long-run trends, according to JP Morgan. "That doesn't explain why the normalization happened all at once during the pandemic, but it does caution against expecting a slump in durables demand," the bank said.
During the Great Recession, spending on durable goods fell by 12% - way more than the 3% drop in nondurable goods, per data from the Bureau of Economic Analysis. Spending on cars, auto parts, furniture and household items fell the most, and didn't recover to pre-recession levels until after 2013.
Cars and furniture just happen to be two of the areas that saw the most spending since the pandemic began. Perhaps, then, the newfound importance these items took on during a pandemic era was enough to help even out the Great Recession's overall decline in goods spending.