Propelled by (formerly) huge gains from real estate, stocks, cryptos, while “real” incomes are lagging behind? “Real” consumer spending increases, service spending increases

You can see why some retail stocks don’t like the shift from goods to services.

By Wolf Richter for WOLF STREET.

Americans far outpaced inflation in April. “Real” spending on goods – what consumers buy at retailers, adjusted for inflation – rose during the month, but was down from last year’s miracle-stimulus peak. “Real” spending on services (such as healthcare, travel, entertainment, etc., adjusted for inflation) has surged, after collapsing during the pandemic, as the shift in spending from goods towards services continues, a sign that the distorted recovery – the economy is normalizing. Spending on services is the most important, accounting for more than 60% of total consumer spending.

“Real” spending has increased, approaching the pre-pandemic trend.

Inflation-adjusted spending on goods and services jumped 0.7% in April from March, to a new record high, and rose 2.8% from April’s stimulus miracle. year, according to the Bureau of Economic Analysis today. It is now approaching the pre-pandemic trend as the consumer economy normalizes to pre-pandemic growth rates, all adjusted for inflation:

“Real” spending on services has jumped, but there is still a long way to go.

Inflation-adjusted spending on services – health care, housing, education, airfare, lodging, rental cars, sporting and entertainment events, haircuts, repairs, etc. – jumped 0.5% in April from March and 5.9% year-on-year. year.

Actual spending on services eventually exceeded pre-pandemic levels and set a new record, after spending on discretionary services collapsed during the pandemic (such as airline tickets, discretionary health services, such as dentists and elective surgery, haircuts, etc.). It remains well below the pre-pandemic trend (green line), but is on the way to normalizing, with spending shifting from goods to services.

This surge in “real” spending on services over the past few months (+5.9% y/y) is what has boosted consumer spending, even as spending on goods has fallen from the crisis-fueled peaks. relaunched a year ago.

Spending on services is important: in April, it represented 61.4% of total consumer spending, but it is still down from the pre-pandemic average of more than 64%. This is an indication that spending on services, as it normalizes, will continue to grow at a disproportionate rate (so watch out for services CPI inflation, which is starting to eat away at everyone).

Real spending on non-durable goods is slowly normalizing to nosebleed levels.

Inflation-adjusted spending on non-durable goods – dominated by food, fuel and household supplies – edged up 0.2% for the month, but fell 0.5% from the stimulus peak -April miracle a year ago.

Even after the year-over-year decline, consumer spending on non-durable goods remains at nosebleed levels, up 12% from April 2019, and well above the pre-trend. -pandemic (green line). But it is gradually normalizing and returning to the pre-pandemic trend:

Real Spending on Durable Goods Suddenly Jumps Month Over Month.

So just to create another surprise about “exploited” US consumers or whatever, inflation-adjusted spending on durable goods jumped 2.3% for the month, just when you thought consumers had bought everything they needed, and were going to back off.

Compared to April’s miracle stimulus peak of last year, real spending on durable goods has fallen 6.5%. Spending remains at nosebleed levels, up 29% from April 2019, and continues to contribute to shortages and price spikes in some of these products, as well as the massive trade deficit, as many of these products are manufactured in other countries or contain components that are manufactured in other countries.

But you can see the uneven normalization, the regression to the pre-pandemic mean:

“Real” income below pre-pandemic trend.

Personal income adjusted for inflation from all sources fell 3.5% from April a year ago, when stimulus money was still coming in, but rose slightly from March (purple). This includes income from wages and salaries, dividends, interest, rentals, farms, businesses, and government transfer payments (stimulus, social security, unemployment, welfare, etc.), but does not include not capital gains. Late last year, as inflation rose, real income fell below the pre-pandemic trend and stayed there. It only increased by 6.0% compared to April 2019.

Inflation adjusted income without transfer payments rose 2.0% from a year ago and 0.3% in April from March (red line). It fell below the pre-pandemic trend at the start of the pandemic. After a partial recovery, it has lost further ground since the end of last year due to the surge in inflation and has remained essentially stable since November.

“Real” disposable income per capita looks worse.

The income data above was for aggregate income, for all consumers combined, where income growth is also fueled by rising employment and population growth.

Here is the level of “real” disposable income per capita – that is, after-tax per capita income from all sources, which was flat for the month and down 6.4% from a year ago. year, and up a tiny 1.8% from April 2019. And that’s well below pre-pandemic trends:

The substantial increase in inflation-adjusted spending and the bleak picture of inflation-adjusted income (which does not include capital gains) show that consumers – not all but enough to move the needle – are still flush with the funds of the gazillion stimulus programs and with the money they can extract from soaring house, stock and crypto prices, where consumers have earned trillions of dollars in total, some of which have already been spent, and some of which have disappeared in recent sales, and some of which they still sit on and will continue to spend.

But consumer borrowing to spend, well… not so hot.

Not adjusted for inflation: Credit card balances, excluding other revolving loans such as personal loans, fell to $840 billion in the first quarter, compared to the fourth quarter, still below the first quarter of 2020 and the first quarter of 2019, and back to where they were in the first quarter of 2008, despite 13 years of population growth and 37% CPI inflation (red line).

Other consumer loans, such as personal loans and payday loans, at $450 billion, were also below pre-financial crisis highs, despite 13 years of population growth and 37% inflation. CPI (green line).

For my in-depth discussion of consumer borrowing across all categories, delinquencies, foreclosures, third-party collections, and bankruptcies, read… Consumers Can Handle Fed Tightening: Their Debts, Delinquencies, Foreclosures, Collections and bankruptcies

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