Consumer spending continued to grow in the second quarter, but its rate of expansion was much slower than the previous quarter, according to Thursday’s report from the federal Bureau of Economic Analysis.
“Spending was up by about the same amount on both goods and services, but those similar figures imply quite different changes in consumer behavior compared to the first quarter of the year,” said John Anderson, economist with the University of Arkansas System Division of Agriculture and the U of A’s Dale Bumpers College of Agricultural, Food and Life Sciences.
“The 11.6 percent increase in spending on goods in the second quarter was a significant drop from the first quarter’s increase of more than 27 percent,” Anderson said.
He said the major difference was in spending on durable goods, which posted a 9.9 percent increase in the second quarter compared to a 50 percent increase in the first quarter.
“Consumer spending on durable goods continued to show historically strong growth in the second quarter, but the gains in spending were far smaller than in the previous quarter,” Anderson said.
Spending on services rises
By contrast, spending on services posted a 12 percent increase in the second quarter compared to just a 3.9 percent increase in the first quarter. This category includes spending on hospitality and leisure activities — restaurants, movies, amusement parks and the like. The jump in spending on such items in the second quarter suggests that as vaccines became available and restrictions on activities eased, consumers responded accordingly.
Anderson sees some positive indicators.
Spending on goods — particularly durable goods like cars and appliances — slowed down while spending on services such as eating out and going to amusement parks accelerated,” he said. “This suggests a return to a more normal balance of spending by consumers; and any sign of a return to the pre-pandemic normal is a hopeful sign.”
Gross domestic product
The gross domestic product, or GDP, also grew 6.5 percent in the second quarter, according to the BEA report. That followed 6.3 percent growth in the first quarter. While those rates are high compared with previous years, the numbers were below analyst expectations.
“Pre-report expectations were for a second quarter figure closer to 9 percent annual growth in real GDP,” Anderson said. “In short, the second quarter showed continuing recovery from pandemic effects but not quite as robust of a recovery as the market was expecting and, no doubt, hoping for.”
Anderson said that among the major components of GDP, government consumption expenditures and gross investment was the weakest.
“At the federal level, this class of spending fell by 5 percent in the second quarter,” he said. “A significant decline was to be expected, as a number of COVID-related support programs had begun to phase out. This decline in government spending was more than offset by a significant gain in spending by consumers.”
See Anderson’s full analysis of this report HERE.