The American Economy Is a Shop Full of Surprises

Economic growth in the US is off to a better start than expected this year, thanks largely to a long-awaited pickup in consumers buying “stuff” again after they shifted spending to experiences in 2022. Shoppers have been spurred by a rapid deceleration in goods inflation, reducing some of the risks associated with a softening in the labor market.

On an inflation-adjusted basis, goods consumption climbed 5% year-over-year in December, its fastest growth since early 2022, with strong demand in both the durables and non-durables categories.

Spending Patterns

The driving force for this is straightforward; prices are still up significantly compared with pre-pandemic levels, but consumers are no longer seeing price increases in the things they buy. There was no goods inflation in December on a year-over-year basis, according to the Personal Income and Outlays report, a trend that’s broadly persisted since the middle of last year. With the labor market still resilient, workers — who are continuing to get raises — have the income to buy more stuff, and they’re choosing to do so.

Companies have been calling out this shift in their recent earnings updates. Procter & Gamble Co. talked about demand rebounding and volume growth going from -3% to 4% in North America over the past several quarters. The logistics company JB Hunt Transport Services Inc. noted that volumes for its intermodal business unit — freight boxes that are passed between trains and trucks — grew 6% in October, 6% in November and 8% in December, all on a year-over-year basis. Executives at Packaging Corporation of America, which makes containerboard and other products tied to e-commerce and the shipping of goods, said that demand is up 8% from a year earlier so far in January, and they see that continuing throughout the quarter.

Disappearing Goods Inflation