“The central reality of the economy in 2021 is that it’s profoundly unequal across sectors, unbalanced in ways that have enormous long-term implications for businesses and workers.” This according to a recent article in The New York Times.
While the economy is recovering rapidly and on track to reach pre-pandemic GDP levels, the article points out that the recovery shrouds “extreme shifts in composition” in U.S. production. It behooves us, therefore, to examine the GDP numbers compared to their pre-pandemic counterparts. Such analysis shows that the spike in first quarter numbers represents a “huge reallocation of economic activity toward durable goods”—the article reports a stunning 41% spike in the first quarter. Spending on cars, for instance, is 15% higher than it would have been based on 2019 data. Furnishings and durable household-equipment spending is 16.6% and a whopping 26% higher, respectively. “Altogether,” the article reports, “durable goods spending is running $348.5 billion higher annually than it would have been in that alternate universe, as Americans have spent their stimulus checks and unused travel money on physical items.”
Two other areas benefitting from this trend, the article notes, are the housing sector and business investment in information technology.
But there are also losers, including the following:
Service industries, especially those related to travel. Even though spending on restaurants, airline tickets, and concerts have risen in the first quarter, the increase was considerably less than the surge in durable goods purchases and “not nearly big enough to fill in the deep hole those sectors face.”
Trade: Service exports are down 26% compared with the pre-pandemic trend, reflecting the freeze in global travel.
Energy: Consumer spending on gasoline is down 11% from its pre-pandemic level, and business spending on structures is down 19%, reflecting a “pullback in investment by both the oil extraction industry and the commercial real estate sector.” On the other side of the same coin, the article notes that state and local governments have faced significant funding constraints, with spending levels 4.3% below pre-pandemic levels.
While every recession ends in a shift in the composition of economic activity, the article argues, “what is striking about this crisis is the scale and speed of the economy’s rewiring.” We don’t yet know the degree to which current shifts will hold, the article states, adding, “Many former waiters or hotel clerks may be ill-suited to becoming construction workers or software engineers.” “The boom is here,” the article concludes, but “we just don’t know yet how bumpy the ride will be in trying to return to something that feels like full-fledged prosperity.”