Why choose? A case for spending growth in services and goods

Summary

A seismic shift in spending on services is right around the corner, but our analysis of prior cycles suggests that there is scope for continued growth in durable goods spending even though some demand for these big-ticket items has been pulled forward.

To date, through March, the level of durable goods consumption is already 28% ahead of where it was prior to the crisis, compared to a scant 1% for overall consumer spending. The durable goods spending spree is quite unique to this cycle.

Consider, it would take five years in a typical recovery for durable goods spending to rise as much as it has over the past 13-months, and we have never seen a 13-month spending surge on durable goods as strong as we are currently experiencing.

In analyzing the past four economic cycles, durable goods spending to date has accounted for a little less than 40% of the average growth typically seen over an entire economic cycle. This suggests that, although this has been an unparalleled period of strength for durable goods consumption, there is still further room for growth.

With the public health situation improving and the economy continuing to gradually reopen, households are again preparing to direct consumption toward services. We expect the sizable pickup in services spending to be the primary driver of consumer spending in the second half of the year, but our analysis demonstrates that it need not come at the expense of a complete collapse in goods spending.

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