The Durable Goods Boom Is More Sustainable Than It Looks
Consumer spending on durable goods fell for the sixth month in a row in September, according to inflation-adjusted data released last week. But even with the decline, Americans are still buying lots more video and audio equipment, home furnishings, boats, recreational vehicles and other durables than they were before the pandemic — or than they would have if durables spending had kept rising at its pre-pandemic pace.
The one big exception is motor vehicles, which are responsible for most of the durables decline since spring and of which Americans bought about the same amount in September 2021 as in September 2019. This seems to be due more to supply constraints related to semiconductor shortages than to waning demand, so we can probably expect a rebound in the near future.
After that plays out, though, the obvious takeaway from a chart like the one above is that durable goods spending ought to revert toward the pre-pandemic trend. Maybe not all the way to it: we’ll surely see some permanent shifts in how people spend their money after the pandemic, especially relating to remote work, commuting and such. But durable goods are, at least in theory, durable. People will keep buying cars and dishwashers and SUVs but they don’t need new ones every month. The explosion of durables spending over the past year-plus should thus mean Americans won’t need to buy quite so much in the near future. This is both good and bad news for the economy: it implies that there’s an end in sight for the current supply-chain madness, but it also entails a higher risk of a negative growth shock.
Still, what if the trend line above is the wrong one? It starts in the month that real durables spending bottomed out after the Great Recession and ends the month before the pandemic sent it briefly plummeting once again. But the recovery from the Great Recession was infamously slow and comparatively devoid of that time-honored driver of durable goods spending: young people buying houses. At least, that’s the critique I got from a few readers after I wrote about the current durables spending boom and its sustainability for Bloomberg Businessweek and on Twitter. So I decided to try out some other trendlines.
The Bureau of Economic Analysis only publishes inflation-adjusted durables spending estimates in dollars back to 2002, but does offer indexes going back much farther that attempt to measure changes in the quantities of goods and services people buy. Here’s the real durable goods quantity index compared with the trend from January 1991, when goods purchases bottomed out near the end of the 1990-1991 recession, through October 2007, when they peaked before the Great Recession.