Question

. Explain how the Covid-19 pandemic has impacted the various types of consumption: durables, semi-durables, and non-durables. How are these impacts different and why?

Answer 1

United States Bureau of Economic Analysis (BEA) reported first quarter Q1-2020 GDP decline of 4.8% on an annualized basis. It is one of the biggest falls in GDP numbers and the worst quarterly contraction since the Great Depression of 2008-09. Furthermore, as per some economists, the second quarter GDP is expected to be substantially worse, as the first quarter decline does not fully capture the economic carnage that the pandemic has brought upon the US economy. Note that the US Government announced “Stay-at-home” order during late March, which makes first quarter GDP hit by COVID-19 for only one month.

The leading factor for the decline in GDP was the downward spiral in (a) Personal Consumption Expenditure (PCE), which is the bedrock of US economy and contributes around ~70% annually. The remaining contributors are (b) Gross Private Investment (Capital Expenditure by Company/Individuals for Buildings, Machinery, Intellectual Property and Residential Property) with contribution of ~17%, (c) Net Exports of around -4% and (d) Government Consumption Expenditures & Gross Investment of ~18%.

Since, PCE which fell 7.6% during Q1-2020 from Q4-2019 (largest ever decline in its history) and has the most weightage in US GDP, this blog will be focused more on its cause and effects on the US economy. PCE is composed of two main components: Goods consumption and Services consumption among the general population.

The demand for goods consumption declined marginally by 1.3%, however, it is further subdivided into durables and non-durables category. Durable goods (including; automobiles, household equipment, furnishings & other durables) saw significant decline of 16.1% over the last quarter due to the closure of US economy and deferment of purchases of automobiles and other durable household goods by consumers due to uncertainty in economic environment as well as household income; although, this was marginally compensated by growth of 6.9% in demand for non-durable goods, which includes food & beverages, clothing & footwear, fuel and other nondurable goods. However, within non-durable goods category, food & beverages saw the maximum growth of around 25% on an annual basis, led by panic buying of food supplies and other household consumables (~13%), emptying the shelves of supermarkets on account of fear of shortages. Apparels and fuel witnessed a huge drop of 36% and 5.5% respectively.

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