Demand decides

In January 2016 real — inflation adjusted — Personal Consumption Expenditure in the United States was $12,799 billion. Four years later in January 2020 real PCE was $14,185 billion, very close to a ten percent increase. Early in the Pandemic PCE cratered (see first chart below). But by March 2021 PCE had recovered to $14,269 billion. In the three years since, real PCE has increased to $15,762 billion, again about a ten percent increase — but over 36 months instead of 48.

Between first quarter 2016 and first quarter 2020 US Gross Domestic Product increased just a tad under ten percent. In the three years since first quarter 2021, US GDP has grown about eight percent. (See second chart below) So, US consumers’ pace of post-pandemic spending is higher than our pace of economic growth over the last three years. Again these are inflation-adjusted numbers. Americans are spending a bit more, a bit faster in real terms. Given the inflation rate — especially between March 2021 and March 2022 — spending can feel even faster.

But since March 2021 real consumer expenditure on goods — food, cloths, furniture, etc. — has been flat. Meanwhile real PCE for services has increased roughly ten percent (see third chart below). We are spending more on medical care, eating out, traveling, etc. Supply chains certainly enable the service economy, but supply chains per se are mostly focused on fulfilling demand for physical stuff. Ergo the so-called “Freight Recession” (here and here and here). Given volatile fuel costs and increased labor costs (more) and debt costs (more) this can sometimes feel like a freight depression. Todd Davis at FreightWaves points out, “Active truckload operating authorities are 39% higher than in 2019, while tender volumes are just 12% above May 2019 levels. The national Outbound Tender Volume Index (OTVI) shows an 8%-9% increase in truckload demand over the past year, with local haul freight (under 100 miles) driving annualized growth.” Since late winter US rail traffic seems to be heading lower. Freight capacity was insufficient to fulfill demand for much of late 2020 to early 2022. Carriers then over-compensated a bit. The system is now in the process of adjusting to the no-growth, slow-growth shipment pattern. There continues to be excess-capacity among carriers. But there is also enough persisting demand — and the prospects of just a little bit more — that capacity has not collapsed. It is not always pretty, but this is how a resilient system behaves.


Personal Note: Other work is keeping me away from this blog and distracting me from the sort of large scale network behaviors that I usually try to make sense of here. I am past-due for a monthly update on big flows. The attention to US demand set out above is an effort to set the stage for this update. As always (I argue), demand decides.