Snapshot: Consumer Spending Patterns Have Changed

When lockdowns hit during the pandemic, they changed consumer spending patterns overnight. Between February and May 2020, the share of spending on services rather than goods dropped three percentage points (a significant reduction). Services like recreation, transportation, and food and accommodations, which require in-person contact, were severely disrupted, while goods categories like food and beverages, furnishings, and recreational goods experienced a boom, in part due to government stimulus programs and strong household income growth.

Fast forward to today and the services share of total spending has partially rebounded and stabilized – but still well below the pre-pandemic trend. Our colleagues in Goldman Sachs Investment Research recently provided their insights on whether or not the recent imbalance between services and goods spending is likely to persist.

They believe the imbalance is largely driven by strong consumer finances coupled with the persistent shift to working from home, which has led households to reallocate their spending budgets. Three pieces of evidence support the important role of work-from-home in changing spending patterns:

• Spending on office-adjacent services – such as personal care, clothing and ground transportation – has shrunk more than spending on leisure-related services – such as movies, live entertainment and restaurants.
• Goods with the most elevated spending are often close substitutes for out-of-home services that have seen reduced consumer spending shares. For example, electronics and communication goods could replace certain commuting costs; personal care products substitute for personal care services; and recreational items may replace outdoor leisure activity services.
• Metro-level credit-card spending data shows that each 1% increase in the work-from-home rate is associated with a 0.2% increase in goods spending and a 0.8-1.4% reduction in spending on in-person services and transportation.