Thoughts in Charts: Do I Need That?

These two charts aren’t earth-shattering bits of new information; however, they did give me pause. I came across these while reading Jonathan McCarthy’s “Discretionary and Nondiscretionary Services Expenditures during the COVID 19 Recession” post on Liberty Street Economics. McCarthy is a vice president in the Federal Reserve Bank of New York’s Research and Statistics Group. Nearly 10 years ago, he published a framework for examining personal consumption expenditures (PCE) and every so often, he applies it to current situations. This January, he was back with insights on the current spending.

 

These charts divide discretionary and nondiscretionary consumer spending. Starting with the bottom chart, nondiscretionary spending in housing, financial services, and health care dropped sharply as the pandemic set in. Based on McCarthy’s data analysis, most of this drop was in health care because elective care was postponed or suspended. As of November, health-care spending had returned to near the pre-pandemic levels as did non-discretionary spending.

 

Discretionary spending, however, has plateaued after a sharp increase in June. Not surprising, the main culprits remain transportation, recreation and food services. These segments of the economy clearly remain under enormous pressure, but the “stall” described by McCarthy is really interesting. As of November, it hasn’t had an upward trajectory. The data from June through November asks us to consider: have consumers reached a comfortable level of non-discretionary spending? What will it take for them to start increasing that spending toward the pre-pandemic level?

 

If COVID has taught us anything, it’s that tomorrow may bring a whole new set of experiences – sometimes challenging, sometimes hopeful, and sometimes inconclusive. While the stock market has soared as of late, clearly for a lot of us, we are still deciding if we are ready to spend on much more than what we absolutely need.

 

McCarthy, Jonathan. “Discretionary and Nondiscretionary Services Expenditures during the COVID-19 Recession.” Liberty Street Economics, 15 January, 2021, https://libertystreeteconomics.newyorkfed.org/2021/01/discretionary-and-nondiscretionary-services-expenditures-during-the-covid-19-recession.html.

 

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