Consumers May Pivot From Physical Goods to Services as Pandemic Wanes
Buying Up Goods During COVID-19
In the earlier stages of the pandemic, Americans spent less on services such as travel and entertainment while spending more on physical goods. With lockdowns in effect, consumers did more shopping online and preferences changed. Sales of goods like electronics and furniture skyrocketed as more people worked and learned from home.
Economists say that trend started reversing as last year progressed, and the easing of Omicron could accelerate the process. Physical goods including food, clothing, cars, and appliances made up 36% of personal consumption during March and April 2021, representing a 5% increase from pre-pandemic years. Now, the Commerce Department says that percentage is dropping.
Why the Switch to Services?
Some analysts say consumers are experiencing general fatigue when it comes to buying physical stuff, and there are other factors driving down spending on goods as well. Supply-chain issues and pricing pressures have made those goods less attainable for the average consumer. Similarly, most consumers have since spent government stimulus checks.
Economists point to other factors suggesting that spending on services may increase. Falling infection rates and warmer weather will bring people out of their homes in larger numbers, boosting the travel and dining sectors. Market watchers say unless a new and significant strain of COVID-19 emerges, the goods and services breakdown will start returning to pre-pandemic levels.
Changing Appetites and Spending Shifts
At the start of 2022 the economy continued to deal with Omicron’s impact as increased case numbers limited job growth and pushed down consumer spending in general. Throughout January, data showed spending on travel and restaurants lagged. Some analysts say the spending shift away from goods and into services may see a resulting delay.
Still, others point to rising wages and a robust jobs market as reasons why Americans will have more to spend this year. That disposable income, combined with other trends, is why some predict increased spending on services. There’s an argument the spending shift could help reduce inflationary pressures on physical goods — a trend many in the service industry would welcome.
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