When the COVID-19 pandemic arrived in the United States in March 2020, forcing widespread lockdowns to contain the spread of the virus, consumer spending fell off a cliff. Following an abysmal April, which saw spending levels down more than 18 percent compared to January, personal consumption expenditure started to recover swiftly, however, coming within a hair of January 2020 levels by the end of the year, before eventually surpassing pre-pandemic spending for the first time in January 2021.
Thanks to government stimulus checks, vaccination progress and a rise in consumer confidence, spending continued to climb for the better part of 2021, surpassing January 2020 levels by 6.8 percent in June on a seasonally adjusted basis. That’s only half the story though, as the following chart, based on data from U.S. Bureau of Economic Analysis, illustrates. While spending on goods quickly recovered from the initial shock, returning to growth as early as June 2020, it took 12 months longer for consumer spending on services to finally reach pre-pandemic levels in June 2021.
The reasoning behind these numbers is straightforward: as the pandemic severely limited people’s options to spend money on services such as restaurant visits, travel or other leisure activities either restricted or advised against, they shifted their spending to physical goods, trying to adjust to life with the coronavirus.
The fact that services spending finally climbed out of its pandemic hole is a good sign. After all, the United States is a service economy, as a look at the composition of the U.S. GDP reveals: in 2019, personal consumption expenditure on services accounted for 47 percent of the gross domestic product, making it by far the biggest contributor to the country’s economic output.