COVID is Still the Big Factor as Economists Discuss Where Consumer Dollars Are Going

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Even as the world was still grappling with the effects of the pandemic a year after the virus first spawned shutdowns across the globe, considerable optimism started to take hold in early 2021 as countries began distributing COVID-19 vaccines. And at first, this translated into a strong economic rebound for parts of North America, Europe, and Asia. But that soon would slow as new virus mutations and strains, coupled with roadblocks to mass vaccination, got in the way.

To be clear, people didn’t stop spending during the pandemic. As Blu Putnam and Erik Norland pointed out in an earlier episode of The Economists, many individuals simply shifted their spending from services to goods. So as economies began to reopen, the prevailing expectation was that pent-up demand for activities and services once again made available would cause consumers to throw their dollars in that direction.

This has happened to an extent, with spending on services greater now than it was during the 2020 shutdowns. But what we’re also seeing is that individuals continue to be highly selective as to how they spend their discretionary income. And it still remains to be seen if there will be enough of a shift from spending on goods to services to help ease some of the supply chain issues and upward price pressures of the past 18 months.

Even if consumer spending is not likely to fully revert to pre-pandemic patterns, Putnam says, “the good news is that there is enough progress and confidence [for the Fed] to commence an ever-so-slowly withdrawal of emergency support by reducing monthly asset purchases.” And that factors into the bottom line, which, according to Putnam, is that the economy is still improving. Retail giants like Amazon AMZN and Walmart WMT could continue to gain revenue if spending stays heavily in the realm of goods, but service companies such as Wyndham WH and Royal Caribbean RCL might spring back if it moves toward more services and experiences.

Read the full article and watch Putnam and Norland’s video discussion of consumer spending habits and the impact on the economy here.