During the pandemic, consumers focused on goods rather than services. They would replace services with goods they could buy. For example, while gyms were closed or simply considered risky, many consumers purchased workout equipment to keep in their homes. In the spring of 2021, goods accounted for 42% of household spending compared to 35% prior to the pandemic, while services declined 58% from pre-pandemic levels. While an increase in spending on goods helped America out of recession, an inflation issue was created.

Now, retailers are preparing for a slowdown as interest rates increase. Amazon specifically has been losing tens of millions of dollars a day due to having too much space that is not currently being used. During the pandemic, Amazon experienced a surge of demand and expanded their warehouses to meet the unprecedented demand. Amazon’s struggles show the process of the economy—shifting spending on goods back to services. While this shift could help ease supply chain bottlenecks and lower inflation, many retailers are struggling.

Even as consumers begin shifting to more service-heavy spending, experts are noticing that not all services are rebounding quite the same. While “fun” and “non-essential” spending categories such as food services, air travel, vehicles and pets have been rebounding, spending on “essential” services such as public transport, doctors, dentists, and childcare have been slow to recover. This raises the question—will consumer spending ever return to pre-pandemic norms?

(The Economist, 05.29.22)

If you have questions on what a purchasing shift from goods to services means for you, contact us today or email us at info@h2rmarketresearch.com.

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