June 19, 2022
The media look to be switching rapidly from their full-fledged inflation hysteria to recession hysteria. The Washington Post is leading the pack with an article headlined, “Americans are starting to pull back on travel and restaurants.”
The one clear substantive item in the piece supporting the headline is the drop in retail spending the Commerce Department reported for May. However, the May retail sales report actually showed restaurant spending was up 0.7 percent for the month.
But the highlight of the piece is a chart headlined “Spending on services is declining faster than it is for goods.” The chart shows year-over-year increases in spending on services and goods based on data from Barclay’s Research. Spending on goods is shown to be up year-over-year by around 10.0 percent in January, rising to 13 percent in March and then falling back to a 9.0 percent year-over-year increase by June. In contrast, service spending is shown to be up by more than 30 percent in January, with the size of the year-over-year increase declining so sharply that it is just over 15.0 percent in the June data.
I don’t know how Barclay’s Research calculates these figures, but there are two obvious points here. First, the comparison year is 2021. At the start of the year, few people were vaccinated, which meant that most people were reluctant to go to restaurants or use other in person services. By June of 2021, most of the people who wanted to be vaccinated were vaccinated, so we began to see the shift back to services that has continued ever since. Therefore, it is not surprising that the year-over-year change would be lower in June than in January, even if there was no recession on the horizon.
The more important point is that these year-over-year increases are still huge. Even adjusting for inflation over the last year, these data still imply very large increases in consumer spending. They don’t point to a recession.
If Washington Post reporters and editors had access to the Washington Post, they would know that the Federal Reserve Board was ostensibly worried about the economy growing too rapidly, thereby triggering inflation. The data in this column are more supportive of the too rapid growth story than the recession story it’s trying to push on readers.