Fact 1: Recovery in the demand for services has lagged behind recent business cycles.
The period immediately following the peak business cycle has historically been marked by initial weak expenditure on goods, while expenditure on services has tended to be little affected. In other words, the latest hallmark of the recession was that consumers delayed purchases of goods, especially durable goods. This may interest you : How will we know if the United States is in recession?. This pattern is visible after the peaks of 1981, 1990 and 2008 as shown in Figure 1, although less so in the 2001 recession.
The spending structure during the COVID-19 recession was quite different compared to other periods. In the 14 months leading up to the pandemic, annual growth in real spending was 1.9 percent for services and 4.4 percent for goods, which is roughly in line with previous business cycles. In 2020, after brief, sharp declines in both types of spending, spending on goods increased while spending on services remained well below its pre-pandemic peak. Spending on goods peaked at 20 percent above the pre-pandemic level in March 2021. And one and a half years after the recovery, real consumption of goods fell. In previous cycles, it was then that the consumption of goods began to rise.
The health risks of the pandemic have significantly undermined the demand for direct services, leading to an over 20% drop in actual spending on services by April 2020. Real service spending was slowly recovering from the beginning of 2021, and above pre-pandemic levels. However, it remains roughly 3 percent below the earlier trend; in addition, due to the sharp increase in spending on goods, the share of total spending on services is 4 percentage points below the average for the decade before the pandemic.
Fact 2. Leisure and hospitality, transportation, and health services saw the largest declines in demand.
Service industries were hit hardest by the decline in spending in early 2020: Consumers interact face-to-face with many firms in the service sector, and many of these interactions were limited by health risk. Read also : Stats: U.S. The Motion of Will Holds Towards Even Inflation. Which sectors contributed to the overall decline in real consumption of services during the actual COVID-19 recession 1? In April 2020, recreation, food and accommodation, transport and health care contributed to the initial 20% decrease in real consumption of services (Figure 2).
Spending on food and accommodation reached pre-pandemic levels in September 2021, and the recovery was fueled by restaurants. Real food expenditure exceeded pre-pandemic levels by 5 percent by July 2022, the same month that spending on accommodation only surpassed pre-pandemic levels for the first time. Spending on health services has not yet improved, although it is approaching pre-pandemic levels. Though surprising in the midst of the pandemic, many consumers have postponed preventive care and elective procedures.
Spending on leisure and transportation services also reflects an early decline in spending on personal activities, initially falling by almost 60 percent and 50 percent, respectively. Spending in these categories increased steadily throughout 2021, but then stabilized in the first half of 2022. In July 2022, actual spending on leisure and transportation services was approximately 10 percent below pre-pandemic levels.
Fact 3. Small businesses in most industries reported that issues with hiring workers eclipsed other problems.
Figure 3 shows the wide variation in the types of problems reported by small businesses across different sectors in the Census Bureau’s Small Business Pulse Survey. Over the past few years, small businesses have reported that they sometimes suffer from labor shortages as well as supply chain and logistics issues. Read also : New York is currently the most expensive US city for air travel. However, until April 2022, the most frequently reported problem in most sectors was the ability to hire all the workers they wanted.
As of August 2021, catering companies have consistently reported the greatest difficulties in hiring employees, with 50 to 70 percent of companies saying this is a problem. In other sectors, including manufacturing and healthcare, around 40 percent reported problems with employment. A study conducted in July 2022 by the National Federation of Independent Businessmen (NFIB) found that around 50 percent of small business owners reported difficulties filling job vacancies, around 20 percentage points above the historical average (Dunkelberg and Wade 2022). Firms’ difficulties in hiring employees are likely to slow down the recovery of relatively labor-intensive service sector enterprises.
Many small businesses also reported difficulties in accessing supplies or inputs. This was particularly true for small firms in the manufacturing, construction, and retail industries, where approximately 50 percent of firms across all industries report supply and input problems in a pulse study. In addition, a significant proportion of manufacturing companies experienced both production delays and delays in delivering products to customers. Inheriting some of these production delays, wholesale distributors also experienced late delivery problems. These problems do not appear to have eased in recent months. The July NFIB report found that about 30 percent of companies reported that supply chain disruptions had significantly impacted their operations, almost identical to the national average in the April Pulse survey.
Fact 4. Separations and hires remain elevated in leisure and hospitality.
March and April 2020 saw record separation of workers across all service industries, especially leisure and hospitality. This was followed by a sharp increase in employment in May and June 2020. From the first few months of the pandemic, separations and employment in most sectors remained higher, but closer to pre-pandemic levels, with a few notable exceptions: leisure and hospitality, where both separations, and rental remain at an increased level, production (increased employment) and construction (reduced employment).
During the pandemic, the outflow of employment – a combination of separation and hiring – was highest in industries that require more personal work (Stevenson 2021). In the entertainment and hospitality business, the net result of both high resignation rates and high employment rates was a significant employment shortage: employment was still 1.2 million below pre-pandemic levels in August 2022. This is by far the largest shortfall in any industry. As the demand for these services continues to grow, the number of jobs remains much higher. After reaching nearly 2 million in December 2021, the number of openings for entertainment and hospitality facilities has only slightly decreased, to around 1.5 million openings since April this year.
Other sectors of direct contact that have been significantly affected are education (public and private) and healthcare. In the private sector, the combined education and healthcare industries saw a jump in separation in March and April 2020 of more than 5 percentage points from the pre-pandemic separation rate. Employment in private education and healthcare has been elevated since the summer of 2021, but in August 2022 employment in these industries remained slightly below their pre-pandemic total and well below the previous trend. In addition, as shown in Figure 4, employers in the health and education sectors have reported significant hiring difficulties.
In the government sector, the increase in separation was smaller, but much more sustained, and continued until the fall of 2020, mainly due to protracted separations in state and local education. The clerical hiring rate has been noisy, but overall high since 2021. Nevertheless, in August 2022, employment in the government sector remained close to 3%. below the level of February 2020, with roughly half of the shortfall in local government educational services.
Fact 5. The majority of individuals employed in leisure and hospitality in the year before the pandemic were still employed in that sector one year later.
Panel data from the Current Population Survey show that among those employed for recreation and hospitality from March 2018 to February 2019, March 2019 to February 2020 (12 months before the pandemic) or March 2020 to February 2021, the majority remained employed in this sector next year. The survey allows researchers to track certain individuals over 16-month periods. Among those respondents that can be seen throughout the period, 57 percent of those who reported employment in the entertainment and hospitality sector in the year before the pandemic were employed in the entertainment and hospitality sector the following year, 24 percent were employed in a different industry, 10 percent were employed . unemployed, and 9 percent were no longer employed (shown in the middle bar of Chart 5).
It is instructive to compare the period shown in the middle bar, which shows changes from the year before the pandemic to the year after the outbreak, to other periods. Compared to the two years before the pandemic (first bar) and the two years after the outbreak (last bar), the unemployment rate for recreational and hospitality workers was higher. However, other trends were very similar in all periods. It is even more surprising that among those employed in the second year of the observation period, the share of people leaving the entertainment and hospitality industry is remarkably similar. The consequence is surprising given that 2020-21 was characterized by increased health risks and other difficulties in working in the entertainment and hospitality industries, as well as strong demand from employers in other sectors.
Another study on long-term displaced persons shows that until January 2022, labor market outcomes were less positive for those who had been employed in the entertainment and hospitality industry with the same employer for three or more years (BLS 2022c). These longtime workers tend to be older and have other less typical characteristics in an industry characterized by significant decline. Among them, 64 percent. were re-hired, 13 percent were unemployed, and 22 percent. left the labor market.
Fact 6. In 2022, the largest wage gains occurred in food services and accommodation.
In the years 2014-2019 and 2020, the increase in real wages in each industry was positive on average. From 2020 to 2021, real wage growth was somewhat positive for all service sector workers, driven by positive real wage growth in leisure and hospitality, retail and ‘other services’; at the same time in the goods sector it was negative during this period. Extending this period with the latest data from the second quarter of 2022, real wage growth from 2020 has been negative on average for private employees in various sectors (purple bars in Figure 6). Since mid-2021, rising inflation has undercut real wage growth in the first year of the pandemic.
Two industries show positive real wage increases from 2020 to Q2 2022: entertainment and hospitality (1.3% annually) and retail (0.6%). These profits, however, are lower than in the period 2014-19: 1.8 percent, respectively. and 1.6 percent for these sectors.
Surprisingly, the pattern of real wage increases appears to be only modestly related to which industries are struggling to hire or which industries have increased employment. On the one hand, leisure and hospitality do show that employment growth and hiring difficulties are linked to higher wages. Perhaps the relatively low level of difficulty in hiring among retail firms is due to strong wage increases. On the other hand, producers also face increased employment and hiring difficulties, yet real wage increases have been sharply negative. Moreover, health care companies also report hiring difficulties and show negative real wage increases.
Fact 7. In most occupations, the importance of interpersonal interactions has grown.
O * NETsurvey data shows that over the past 10 years, the importance of occupational tasks that involve interpersonal interactions has increased in almost all occupations. These tasks include helping or caring for others, resolving conflicts and negotiating with others, and training and teaching others. Indeed, previous studies have shown that since 1980, soft- or non-cognitive skills related workplaces and social tasks have increased dramatically and critical thinking skills have increased, while routine and math tasks have decreased or decreased (Author, Levy and Murnane 2003). ; Acemoglu and the Author 2011; Deming 2015; Schanzenbach et al. 2016; Atalay et al. 2018; Hershbein and Kahn 2018).
Although the increase in the importance of interpersonal interactions was not limited to the professions generally associated with the service sector, the greatest increase was recorded in the service sector occupations. For example, Figure 7 shows that the two professions that have seen a particularly large increase in the importance of such activities are healthcare assistance and the preparation and serving of meals. The growing importance of interpersonal interactions is likely to continue: Deloitte reports that by 2030 high-skilled jobs will represent two-thirds of jobs, which will increase demand for such skills (Deloitte 2019; Cengage 2019). According to Microsoft’s 2021 Job Trending Index, interpersonal interactions increase productivity and lead to greater innovation through strategic thinking, collaborating with others, and proposing new ideas (Microsoft 2021).
How will the importance of interpersonal tasks affect the increasing prevalence and preference for pandemic-induced remote work? The relationship between working from home and the importance of interpersonal tasks goes beyond face-to-face interactions, with the relationship varying widely by occupation (Avdiu and Nayyar 2020). Developing interpersonal relationships with clients, clients and co-workers may look different in a world where tasks at work require interpersonal interaction, but more tasks in the service sector are performed remotely.
Fact 8. The trajectory of inflation differs by sector and location.
During the pandemic, as consumer spending shifted from services to goods and the sector was plagued by supply constraints, commodity inflation spiked cities across the country (Stone 2022). As shown in the second panel of Figure 8, the annual inflation rate for goods (goods) increased from August 2017 to August 2019 and from August 2020 to August 2022. In seven selected (and generally representative) metropolitan areas the increase was between 7 and 9 percentage points; on average in US cities, this indicator increased by more than 8 percentage points, from 1.4 percent. up to 9.8 percent
Services inflation also increased on average, but the third panel shows that increases have been smaller than for goods and showed greater variation from place to place. In fact, service inflation fell in San Francisco and remained more or less unchanged in Los Angeles, possibly fueled by a decline in shelter inflation, as shown in the seventh panel. (However, fact 9 suggests that the Consumer Price Index (CPI) for shelters is slowly accelerating price growth, and that rising shelter inflation may be on the horizon in cities that have experienced modest inflation in the area so far.) In six other metropolitan areas, service inflation increased from 1.3 percentage points in Seattle to 3.3 percentage points in the Miami area.
On average, in US cities, food service inflation rose 5.9 percentage points, and home food prices rose more than prices in restaurants and other third parties. However, increases have varied considerably across cities, from a low of 2.8 percentage points in Miami to 7.4 percentage points in Houston. In recreation, the rise in inflation ranged from 0.9 to 8.0 percentage points. Medical service inflation has remained stable or slightly decreased, with the exception of Los Angeles, Philadelphia and Seattle.
Fact 9. New leases are driving housing services inflation.
According to many rental price measures, housing inflation was subdued at the start of the pandemic, but has since risen above pre-pandemic levels (Chart 9). Measures of inflation from the CPI and the Personal Consumption Expenditure Index (PCE), which reflect changes in rent costs for the average tenant, fell from around 3.5 percent of the annual rate in 2019 to a low of around 2 percent in mid-2021. However, since Since the summer of 2022, growth has rebounded: the 12-month change in both measures has exceeded 5 percent since the summer of 2022. Since leases are usually fixed for a year, the sharp acceleration of rents for new leases affects average rents only after the inclusion of new leases. As such, changes in CPI and PCE house price inflation generally lag behind other measures that show price changes for new leases only (Ambrose, Coulson, and Yoshida 2020).
Even with the more timely capture of new leases, most indicators show that the 12-month price change for new leases has been declining in the first year of the pandemic. Rates soared in 2021, long before the CPI and PCE began to rise. While these measures of rental inflation under new lease contracts have fallen somewhat in recent months, they remain well above the CPI and PCE measures. As housing costs account for a large proportion of spending on services, as measured by both CPI and PCE inflation measures, rising rents – and house prices – are already putting significant pressure on rising overall inflation. From 8.5% annual increase in CPI inflation and 6.3 percent. of the increase in PCE inflation in July 2022, housing cost inflation was around 2 and 1 percentage point, respectively (with differences in methodology and weights). The measures presented here suggest that these premiums will increase in the coming months as newer leases are introduced.
Of course, not all cities have experienced the change in rent inflation to the same degree. It’s worth noting that rental prices in New York City fell 22 percent between November 2019 and November 2020, but then rose 33 percent in the 12 months ending December 2021, according to the Housing List. In Kansas City, MO, by contrast, rental prices increased by 1 percent between November 2019 and November 2020 and increased by 9 percent between December 2020 and December 2021.
