American Consumer

The economy is normalizing after a wild post-pandemic roller coaster ride.

1. Travel is stable at just a little above 2019 levels. We’re no longer seeing the year-over-year growth in travel we saw as we were revenge spending and making up for lost time (Exhibit 1). It’s not that consumers are pulling back. But having exhausted the “excess” savings accumulated during the pandemic, there’s no longer room to grow spending on travel as we did over the past several years. 
   
   Why this matters: If you look at earnings reports from travel companies like Airbnb, Expedia, Booking Holdings, United, etc., it would seem consumers are pulling back. That’s not quite it. These companies are talking about how growth in travel is slowing. They are no longer able to sustain the growth they experienced these past few years. This headwind for the travel industry is a tailwind for Numerator’s retail and CPG clients: a normalization of growth in travel spending also means a normalization in the consumer pull-back on food-at-home spending. If you’re no longer increasing how much you’re traveling, you’re no longer reducing how much time you spend at home, and you’re no longer cutting back on food-at-home purchases.
   

2. The labor market is now back to normal. The ratio of job openings to unemployed person is back to 1.2, which is right where we were in 2019 (Exhibit 2).
   
   Why this matters: A too-hot labor market is no longer a source of inflationary pressure. Workers can no longer command big wage increases by jumping to different jobs as they were doing these past few years. The “Great Resignation” is in the past. But if workers are no longer getting big wage increases, they can no longer increase their spending as they were doing these past few years, so expect consumer spending to slow to normal, pre-pandemic rates of growth.
   

3. Do you remember all the talk about a potential recession in 2019? Back in 2019, economists were concerned that the post Great Recession expansion had run its course. We ended up getting a recession because of the pandemic, but the prevailing thinking was that a mild recession might have happened anyways. We’re back to 2019 trends and that includes concerns the economy is slowing and might slow too rapidly.
   
   Why this matters: Monetary policy is tight right now. This is usually the time policy mistakes can happen (Exhibit 3). It’s hard for the economy to tip into recession when consumers are holding trillions of dollars in excess savings and are releasing pent-up demand. The risks of a policy mistake are greater when consumers have exhausted their excess savings and are no longer binging on entertainment, travel, and other services spending, and when monetary policy is tight, which is where we are today.