Sectoral impact: the consequences of the pandemic across the Atlantic

08/04/2021

Stephen Gallagher, Societe Generale’s chief US economist, thinks that the high levels of goods purchases will soon drop back to historical trend levels. He illustrates this with the example of people no longer going to the gym during the pandemic (service expense) and instead buying exercise equipment (goods) to use at home.

Stephen GallagherOne of the more dramatic changes we’ve seen during the pandemic economy is how people in the US are spending their money. Put simply, consumers are spending much more on goods, upgrading their homes, for example, and less on services, such as travel and other purchases that require social engagement. 

Currently, consumption of goods is running $300 billion above trend. This buying spree of goods is a fairly predictable response to pandemic strictures but how long will it last? And when will spending on services return to their historical levels? 

Stephen Gallagher, Societe Generale’s chief US economist, thinks that the high levels of goods purchases will soon drop back to historical trend levels. He illustrates this with the example of people no longer going to the gym during the pandemic (service expense) and instead buying exercise equipment (goods) to use at home. 

“But will consumers continue to need to buy so much stuff?” asks Gallagher. “Social confinement and stimulus checks have really lit a fire under goods purchases, but I think we’ll see a return to normal levels starting in the second half of 2021 and continuing through 2022.”

On the services front, while housing and healthcare expenditures are above pre-Covid levels due to higher demand for these services, social constraints are still severely hampering a recovery in services to trend levels overall.

Travel, restaurants, hotel accommodations, live concerts and other live-entertainment events remain restrained and spending is $500bn below February 2020 levels. 

“It’s not a want of money preventing a fuller consumer recovery in services,” says Gallagher. “I think spending will return to trend levels eventually but first requires lifting of restrictions and then a rebuilding of public confidence.”