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A Huge Change in Personal Spending Helps Explain Supply Chain Bottlenecks

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20 comments on A Huge Change in Personal Spending Helps Explain Supply Chain Bottlenecks

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Personal Consumption Expenditures 1959-Present

As Invictus noted, manufacturers were totally unprepared for this massive shift in spending patterns.

February 2020 vs September 2021

  • Services: 10,231 to 10,517
  • Goods: 5,555 to 5543

Spending on services since February 2020 is up 2.8%. Spending on goods since February 2020 is up an amazing 21.7%.

The jump in spending on goods is unprecedented dating to 1959.

Moral: Consumers will find a way to spend money no matter what (and government handed plenty of it out in three rounds).

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20 Comments
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blacklisted
blacklisted
4 years ago
Have you heard of this thing called INFLATION. The expenditure are measured in DOLLARS, not # of goods.  The dollar increase can be explained be the increase price of goods. The supply chain problem is the irrational and unnecessary response to cornadoom. 
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LawrenceBird
LawrenceBird
4 years ago
Think part of it is also hoarding, both consumers and businesses.  Makes me think that markets are ignoring the snap back risk 6-12 months from now when outstanding requests are filled and people realize they don’t need to hoard anymore.  Business will also dial back, though probably not all the way to prepandemic thin inventory levels.   
Pricing power can vanish really quickly.  It will be a hoot next year when deflation is the story again!
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Captain Ahab
Captain Ahab
4 years ago
Adam Smith’s argument for foreign trade is well known: having three pairs of Made-in-China Nike shoes is better than one pair made in the USA.  Neglected, is the permanent transfer of wealth if there is a net trade deficit. Net-exporting countries become wealthier, and more powerful. Net importing countries become poorer, and weaker.  See here for the historical overview–1970 to 2019.  http://macrotrends.net/countries/USA/united-states/trade-balance-deficit— and then consider the compounding effect. BTW, it applies to both goods and services. Where would the US be without debt?
The big issue for the US, if it wants to retain #1  status, is how to become a net exporter before it is too late. What does not work:
1) tariffs–Trump’s motivation was right, the solution was ill-conceived.
2) immigration of low/unskilled/uneducated workers
There are ways to stem the outward flow, increased productivity, new products/services, increased nationalism etc… The key is innovation, NOT wasteful government spending on things like racist highways…. Build back better = BULL$hit!
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Eddie_T
Eddie_T
4 years ago
Reply to  Captain Ahab
We don’t need to be a net exporter. We only need to produce for OUR market imho. The big consumer markets for China are the US and the Eurozone. The Eurozone demographics suck, and it’s going to dry up, at least to a large degree.
The entire way the world works has changed anyway. It’s the debtor nations with the consumer base that drive the global economy. Without our consumption, China would lose 20% of their GDP, never mind their own additional problems in RE and finance.
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Captain Ahab
Captain Ahab
4 years ago
Reply to  Eddie_T
Where, exactly, did China get the funds (and wealth) to build its airports, high speed rail, factories, power plants, freeways, navy, air force, entire new cities, etc during the last 25 years, or so? (Incidentally, China’s real estate/finance problems were predictable 15 years ago.)
Keeping in mind, the data is from the World Bank, and subject to miss-reporting, some things to note, if you are capable of thinking critically, and beyond obvious demographics…
From 1960 to the early 1990s, China was NOT a net exporter, in fact almost nothing in terms of GNP–that is a largely self-contained economy without the funds needed for dynamic growth. Thanks to Clinton, China began to export to the USA. It is at that point that American wealth flowed, funding China’s rapid development.
Now, the US is DEPENDENT on China for most manufactured goods, and within the next five years, just about everything else.
So yes, the way the world works changed. However, debtor nations are living on borrowed time–that is the nature of UNPAID debt.
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Eddie_T
Eddie_T
4 years ago
Reply to  Captain Ahab
Now, the US is DEPENDENT on China for most manufactured goods, and within the next five years, just about everything else. 
I disagree with this part. Let’s talk again in five years. I think you’ll see that’s wrong, and we can see who is capable of critical thinking.
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Captain Ahab
Captain Ahab
4 years ago
Reply to  Eddie_T
Right now, the signs of a US renewal are not good. Eg. in the immediate term, shipping containers are collecting at US terminals, or going back to China empty. Longer term factors, China wins hands down: national average IQ, education quality, global plan for economic domination of markets and suppliers  (silk road #2) etc.
Worse, woke-ism does not spur innovation, it stifles it.
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whirlaway
whirlaway
4 years ago
“Goods: 5,555 to 5543 …”

That’s NOT a  21.7% increase!   It is mostly flat – in fact, it is a very small (0.22%) DECREASE.

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MrGrummpy
MrGrummpy
4 years ago
Reply to  whirlaway
I noticed that too.  Perhaps it’s a typo.  That first number does not fit the accompanying graph.   What also appears dissonant is the graph that shows the trend line for personal consumption expenditures. It  shows a dip and recovery, but the recovered final point is really close to the pre-pandemic curve. Did producers and shippers reduce their throughput so much that they can’t handle the recovery?
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thimk
thimk
4 years ago
Well you know , USA has to maintain it’s reserve currency status . Go USA !  /s
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KyleW
KyleW
4 years ago
Reply to  thimk
Countries hold many different assets in reserve. There is no official reserve currency status.
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anoop
anoop
4 years ago
a huge change in commodity price swings, labor costs, shipping cost swings, energy costs going up explains supply chain bottlenecks, because nobody knows what’s a fair value to pay and whether they will be able to recover their costs.
the rise in consumption is because of inflation not because of the number of goods consumed.
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Tony Bennett
Tony Bennett
4 years ago
“Moral: Consumers will find a way to spend money no matter what (and government handed plenty of it out in three rounds).”
…
Don’t sleep on rent moratorium + loan forbearance.  Plenty of stimulus cash and no worries about paying obligations.  Yeehaw!
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TechLover1
TechLover1
4 years ago
Reply to  Tony Bennett
Both coming to a screeching halt now.
For the low income tenants, there is some help still available but for most of the country, these huge stealth stimulus payments are over or soon to be over.
This will be a huge shock to GDP/disposable incomes in the next three months.
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KidHorn
KidHorn
4 years ago
Part of it is, generally speaking, services can be ramped up much more quickly than goods. Goods need a lot more lead time.
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Tony Bennett
Tony Bennett
4 years ago
Reply to  KidHorn
True.  Stuff from Asia probably a good 6 to 9 months from order to in hand.  Overlay with just in time inventory not suited for surge.
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TechLover1
TechLover1
4 years ago
Reply to  KidHorn
While I generally agree with this in a usual economy, I don’t agree in the current situation. Finding employees especially at the low end of wages has been near impossible. Forget about expanding services, just to get back to pre-pandemic level services, it will be tough next few months. And service demand has not really come back yet. Watch as the cost of services skyrocket in the next six months.
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Tony Bennett
Tony Bennett
4 years ago
“Spending on goods since February 2020 is up an amazing 21.7%.”
…
China’s record trade surplus will attest to that.
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Eddie_T
Eddie_T
4 years ago
Interesting trend leading up to the big switcheroo.
What made the consumption of goods fall for years before the pandemic? Maybe things like digital entertainment? Smart phones?  What?
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shamrock
shamrock
4 years ago
It looks like goods consumption is about $1t above the trend line.  Government handed out how much free money?  This could go on for quite a while.
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