--- title: "Smooth Consumers - Flexport Weekly Economic Report" description: "The pandemic era has seen wild swings in US personal savings, with the rate hitting its lowest in over a decade in April. The accumulated savings during the pandemic have allowed consumption to…" language: en canonical: https://www.flex.thisisbrew.com/blog/smooth-consumers-flexport-weekly-economic-report/ lifecycle: live --- # Smooth Consumers - Flexport Weekly Economic Report *The pandemic era has seen wild swings in US personal savings, with the rate hitting its lowest in over a decade in April. The accumulated savings during the pandemic have allowed consumption to remain strong, even as income growth has faltered. Most recently, there has been a split between stronger durables and weaker non-durables consumption.* ## In Focus - Transfers, For The Save It is hardly daring to say that economic behavior under the pandemic has been unusual. The challenge has been to quantify and, if possible, explain. The dark line in the chart shows the U.S. personal savings rate and uses the scale on the right (percentage). In the 20 years leading up to February 2020, the median monthly value was 6.2% and the rate ranged between 2.1% (in mid-2005) and 11.6% (end 2012). Mostly, changes were gradual and unexciting, as they appear in the beginning of this chart. In the pandemic, the median monthly savings rate was 12.8%, with a high of 33.8% (April 2020) and a low of 4.4% – just announced for April 2022. That new figure is the lowest since September 2008, when the Global Financial Crisis hit. This is not just of academic interest. If we want to understand how much consumers will spend on goods, we can break the question down into three parts: - How much money do they have? - How much of it do they save? - Of the part they spend, how much will be on goods (vs. services). The Bureau of Economic Analysis this week just put out [new data for April](https://www.bea.gov/sites/default/files/2022-05/pi0422.pdf) that sheds light on each part of this sequence. We can start with the savings behavior we described above. The chart shows a bizarre, if suggestive, correlation. Oddly enough, it’s between a *percentage rate* (right scale, navy line) and the real level of “government social benefits to persons” (left scale, $2012 trillions). The more money the US government pushed at consumers, the more they saved. This makes some sense from an economic standpoint – people try to “[smooth](https://www.thebalance.com/what-is-consumption-smoothing-5210793)” consumption, rather than going from feast to famine. Economists usually apply this concept across a lifetime, so people spend more than they earn while students or retirees, and less than they earn during their prime working years. It was a substantially trickier proposition during the pandemic, when there was no certainty about how long the unusual stretch would last. The buildup of savings meant there could be a month like April, when real disposable personal (DPI) income stayed flat, but real personal consumption expenditures (PCE) rose 0.7%. Looking back over the last six months, real DPI fell by 1.8% while real PCE rose by 1.2%. At some point, either incomes will pick up or consumption will slow. The real consumption increase over the last six months was a balance between rising consumption of services and falling consumption of goods. April marked a break in the recent trend. From March to April, real durable goods consumption was up 2.3%, while services consumption was up 0.5% and non-durables consumption was up 0.2%. If you find that pattern unsurprising – that durables consumption remained strong relative to services while non-durables consumption faded in relative terms – it’s probably because you read our [Post-Covid Indicator](https://www.flex.thisisbrew.com/blog/post-covid/) forecast from May 16. ## Latest Flexport Metrics & Research The Flexport **Ocean Timeliness Indicator** for Transpacific Eastbound [routes](https://www.flexport.com/research/ocean-timeliness-indicator) fell by two days to 100 days, the lowest since last November. Flexport’s [Air Timeliness Indicator](https://www.flex.thisisbrew.com/blog/air-timeliness-indicator/) meanwhile fell to its lowest since June 27, 2021 in the four weeks to May 29 at 11.1 days average. In other research we published two reports on [conditions](https://www.flex.thisisbrew.com/blog/clothing-and-closures-apparel-sector-challenges/) and [strategies](https://www.flex.thisisbrew.com/blog/clothing-and-closures-apparel-sector-strategies/) in the apparel sector. We’ve also taken a look at four strategies for dealing with the weak [U.K. consumer economy](https://www.flex.thisisbrew.com/blog/sort-the-assortment-dealing-with-a-weak-u-k-economy/). ## Economics Data Along with income and consumption information, the Bureau of Economic Analyses [released](https://www.bea.gov/sites/default/files/2022-05/pi0422.pdf) a key inflation gauge. The **PCE Deflator** showed annual inflation at a 6.3% rate in April, down from 6.6% reported in March. - Broken down, that was a 9.5% annual inflation rate for goods (also down from March) but a 4.6% rate for services (up). The “[Trimmed Mean PCE Deflator](https://www.dallasfed.org/research/pce)” that is closely watched by the Fed rose to 3.8%, its highest level [since 1991](https://fred.stlouisfed.org/graph/?g=PUqW). **Real U.S. Q1 GDP** [shrank](https://www.bea.gov/news/2022/gross-domestic-product-second-estimate-and-corporate-profits-preliminary-first-quarter) slightly faster than first thought, decreasing at a 1.5% annual rate, vs. the initial 1.4% estimate. Contributing factors to the revision were slower inventory buildup (e.g. autos), slower exports, and faster imports. U.S. **international merchandise trade** [activity](https://www.census.gov/econ/indicators/index.html) fell by 8.3% sequentially in April. A drop in commodity prices dragged industrial imports and exports down by 14.2% and 11.1% respectively. A 12.2% slide in consumer goods imports may reflect a wider slowdown, though on a year over year basis imports were still up by 14.3%. The value of **U.S. retail inventories** [fell](https://www.census.gov/econ/indicators/index.html) by 0.7% in April compared to March. That marked the first decline since September 2021 and came as sales rose by 0.9%. While automotive inventories improved, retail store and non-store (e-commerce) inventories dropped by 1.6%. - **Wholesale inventories** meanwhile increased by 2.1% sequentially, led by a 2.3% rise in nondurable goods. **U.S. new home sales** [dropped](https://www.census.gov/construction/nrs/pdf/newressales.pdf) 16.6% from March to April and were down 26.9% from April of 2021. This coincided with rising mortgage rates and, along with [existing home sales](https://www.nar.realtor/newsroom/existing-home-sales-retract-2-4-in-april), can presage a slowdown in purchases of home furnishings. The University of Michigan **consumer sentiment** final reading for May hit its [lowest](https://www.marketwatch.com/story/consumer-sentiment-mired-at-10-year-low-amid-persistent-inflation-umich-survey-finds-11653660319) level in over 10 years. - The U.S. Federal Reserve released a **household survey** which [showed](https://www.federalreserve.gov/newsevents/pressreleases/other20220523a.htm) self-reported economic well-being in 2021 at its highest level since the survey started in 2013. Purchasing managers’ **sentiment in China** [rebounded](https://www.stats.gov.cn/tjsj/zxfb/202205/t20220531_1857815.html) in May with the official CFLP survey recovering to 49.6 from 47.4 in April, suggesting improving business conditions following factory closures. From a trade perspective both export and import expectations increased though both were still below March’s levels. - Business **conditions in Germany** remained in negative territory in May according to the [latest](https://www.ifo.de/en/node/69688) IFO survey. Overall business expectations remained close to their worst since the start of the pandemic. Export expectations [improved](https://www.ifo.de/en/node/69733) slightly and imply expanding orders, but still at their lowest levels since the end of 2020. The World Trade Organization’s [measure](https://www.wto.org/english/news_e/news22_e/stat_25may22_e.htm) of global **exports of intermediate goods** - a measure of supply chain activity rather than final consumption - grew by 21.5% year over year in Q4’21 and by 32.2% compared to Q4’19. Trade in electronic components led the way while the automotive sector lagged. ## Politics & Regulations The head of the **European Central Bank** [announced plans](https://www.bloomberg.com/news/articles/2022-05-27/ecb-s-nagel-sees-several-rate-increases-this-year-spiegel-says?srnd=economics-vp&sref=ZdtLveG1) to raise interest rates later in the year. While the U.S. Fed has had negative *real* interest rates (nominal rates lower than inflation), the ECB currently has negative *nominal* rates. The plan is to end those by the end of Q3, which will still leave the Euro Area with highly negative real rates. - The **Euro area flash consumer price inflation** rate [reached](https://ec.europa.eu/eurostat/documents/2995521/14636256/2-31052022-AP-EN.pdf/3ba84e21-80e6-fc2f-6354-2b83b1ec5d35) 8.1% in May 2022 versus a year earlier. That was predominantly due to higher energy costs, though the rate ex energy still reached 4.1% in May versus 3.4% in March. The Biden administration has begun [discussions](https://www.whitehouse.gov/briefing-room/statements-releases/2022/05/23/fact-sheet-in-asia-president-biden-and-a-dozen-indo-pacific-partners-launch-the-indo-pacific-economic-framework-for-prosperity/) with partner countries for implementing its **Indo-Pacific Economic Framework**. The IPEF will focus on a series of “small-wins” in four major areas of trade rather than being an overarching deal. Not all countries will take part in all elements though commitments will be legally binding. - China meanwhile is [expanding](https://www.ft.com/content/377cdb02-8a45-4ba2-b6ee-88620eb48f0b) its **Global Security Initiative** to provide a counterweight to U.S. attempts to rebuild a coalition of partners in Asia and beyond. The U.S. is also still in the process of reviewing its **Section 301 tariffs** on imports from China, with President Biden [stating](https://www.whitehouse.gov/briefing-room/speeches-remarks/2022/05/23/remarks-by-president-biden-and-prime-minister-fumio-kishida-of-japan-in-joint-press-conference/) “they were imposed by the last administration, and they’re under consideration.” The tariffs have to be [formally reviewed](https://www.flex.thisisbrew.com/blog/inflation-today-geopolitics-tomorrow-u-s-tariffs-on-china/) before July. - In a [speech](https://www.state.gov/the-administrations-approach-to-the-peoples-republic-of-china/) on the administration’s **broader approach to China**, Secretary of State Blinken struck an ambivalent tone, stressing competition but questioning disengagement by stating that “put simply, the United States and China have to deal with each other for the foreseeable future.” The **U.K. is continuing to expand** its range of trade deal negotiations in the wake of Brexit. Talks with Mexico have [started](https://www.gov.uk/government/news/joint-statement-on-the-launch-of-the-negotiations-for-a-free-trade-agreement-between-the-uk-and-mexico) this week while a series of limited areas of cooperation with U.S. states has started with [Indiana](https://www.reuters.com/article/idUSKCN2NC226). That follows a [return](https://www.politico.eu/article/uk-u-turn-parliament-oversight-trade-deal/) in jurisdiction over new deals to Parliament from Number 10. ## Supply Chain Update The European Commission has [outlined](https://www.ft.com/content/6432719d-9a08-4ab2-b8cc-719589b79a23) contingency plans in the event that all **Russian gas supplies** become unavailable. That would include maximizing storage ahead of the winter but may also require rationing. So far the EU has launched sanctions against [Russian coal](https://www.flex.thisisbrew.com/blog/coal-facing-disruptions-eu-extends-russia-sanctions/) and oil but not natural gas. The Russian government has [reportedly](https://www.bloomberg.com/news/articles/2022-05-25/ukraine-latest-russia-plans-to-reopen-port-in-occupied-mariupol) offered to reopen shipping lanes for **food exports**. That comes with the condition, however, that sanctions against the country are removed. The U.S. government appears [unwilling](https://www.bloomberg.com/news/articles/2022-05-26/ukraine-latest-bank-of-russia-to-meet-nato-warns-of-long-war?sref=ZdtLveG1) to accede to the plan. Elevated food prices have led to a round of protectionism export restrictions. India has [already](https://economictimes.indiatimes.com/markets/expert-view/food-inflation-under-control-in-india-due-to-govts-timely-steps-says-fpd-secretary/articleshow/91808712.cms) **limited wheat exports** and is also [considering](https://www.bloomberg.com/news/articles/2022-05-24/india-to-limit-sugar-exports-in-new-risk-to-global-food-prices) similar actions for sugar. The country is also cutting import duties in order to [reduce](https://www.bloomberg.com/news/articles/2022-05-24/india-mulls-tax-cut-on-soybean-and-sunflower-oil-to-cool-prices) food price inflation. - The Indian government is also carrying out similar actions for manufacturing with a mixture of [export](https://www.reuters.com/article/idUSL3N2XF0XZ) [levies](https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/metals/052322-india-raises-export-duty-on-iron-ore-chinese-reception-mixed) **on steel** while also reducing [import tariffs](https://economictimes.indiatimes.com/news/economy/policy/govt-waives-import-duty-on-some-raw-materials-for-steel-industry-export-duty-on-iron-ore-hiked-up-to-50/articleshow/91714314.cms) on raw materials. ## Chart of the Week - Running Low on Fuel **Rising diesel prices**, in part due to elevated oil prices linked to the [Ukraine conflict](https://www.flex.thisisbrew.com/blog/dark-times-for-black-gold-oil-sanctions-against-russia/), have driven inflation across supply chains due to higher costs for trucking. Diesel [fuel prices](https://www.eia.gov/petroleum/gasdiesel/) in the U.S. remain close to their highest since the EIA started collecting data in 1996 as shown in the chart above. There’s also an emerging shortage of diesel in the U.S. While somewhat seasonal, U.S. [stocks](https://www.eia.gov/dnav/pet/pet_stoc_wstk_dcu_nus_w.htm) of distillate fuel oil reached their lowest since May 2003 in the week to May 6, 2022 and remain close to that level. That has led the Biden administration to [consider](https://twitter.com/EmilieSimons46/status/1528723613750272001?s=20&t=BWDgvI1kN8G1qcF67LPpRw) a release from emergency fuel reserves, on top of [reported](https://www.reuters.com/article/idUSKCN2NA1KP) plans to restrict exports of crude oil. There are already signs of a knock-on effect for the trucking industry. A survey of truckers [indicates](https://www.fleetowner.com/operations/article/21242264/survey-points-to-exodus-of-small-operatorsand-fuel-costs-as-the-culprit) that high fuel prices are pushing participants out of the market while the American Trucking Association [reported](https://www.truckinginfo.com/10172917/ata-logs-truck-tonnage-decrease-in-april) a 2% fall in truck tonnage in April. **Disclaimer**: The contents of this report are made available for informational purposes only and should not be relied upon for any legal, business, or financial decisions. Flexport does not guarantee, represent, or warrant any of the contents of this report because they are based on our current beliefs, expectations, and assumptions, about which there can be no assurance due to various anticipated and unanticipated events that may occur. This report has been prepared to the best of our knowledge and research; however, the information presented herein may not reflect the most current regulatory or industry developments. Neither Flexport nor its advisors or affiliates shall be liable for any losses that arise in any way due to the reliance on the contents contained in this report. --- *This is a markdown version of [https://www.flex.thisisbrew.com/blog/smooth-consumers-flexport-weekly-economic-report/](https://www.flex.thisisbrew.com/blog/smooth-consumers-flexport-weekly-economic-report/) for AI/LLM consumption.*