Head of U.S. Economics
BofA Global Research
Spending Shifting to Services
New Covid cases continued to decrease this week, while deaths and hospitalizations also declined further, but there remain risks on the virus front. Vaccinations and natural immunity are helping drive further improvement in the virus situation. Just under two-thirds of the population has now received at least one dose of the vaccine, which should help protect against an adverse scenario. That said, the concern is the Delta variant, which is more contagious and becoming more prevalent, could lead to a surge in new cases.
Consumer spending is shifting from goods to services. In an encouraging sign of appetite for travel, air traffic has continued to rise following the Memorial Day holiday. Daily air travels in U.S. airports rose 3.5% from previous week’s reading.1 Additionally, restaurant spending has continued its positive momentum, with seated diners on the OpenTable network just 11% off 2019 levels.2 While down modestly from the prior reading, consumers are still dining out at levels above pre-Memorial Day. A survey from University of Michigan suggests goods demand is moderating, with high prices as the major factor behind the decline.
Data from Ultimate Kronos Group (UKG) and Homebase point to an acceleration in hiring activity in June. Both indicators have tended to trend with changes in nonfarm payrolls, suggesting we may see an acceleration in hiring for the June employment report. The latest initial jobless claims report recorded new pandemic lows, while continuing claims fell as well. With the first four of 25 states opting out of enhanced unemployment benefits beginning this week, we may start to see sharper drops in initial and continuing claims.
Hiring has picked up and consumers are shifting spending towards services as the recovery continues to progress. The increasing prevalence of the Delta variant lingers as a downside risk to further recovery.
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- TSA Data through Jun 13, 2021
- OpenTable, Haver Analytics, Data through Jun 12, 2021