Morning Brief: Vacation spending up, home spending down

Myles Udland breaks down how the recovery is driving consumer habits as the travel industry sees a resurgence in demand and COVID habits such as online shopping see a decline.

Video Transcript

JULIE HYMAN: We also got some economic data here today that we are continuing to watch. And sort of, Myles hinted that we were getting this or teased to head to it, if you will, in the Morning Brief, where he talked about consumer prices. But first, I just want to reiterate the numbers that we got because we got the hottest core PCE year over year change, going back to 1992. That was a 3.1% gain. And remember, of course, that's the number that is very closely watched by the Federal Reserve. Myles, you wrote about the gains in prices that we've seen in two key areas that you're watching-- airlines and furniture-- and sort of extrapolating what that tells us about what's going on in the economy.

MYLES UDLAND: Yeah, so, you know, Bank of America's economic team, they have all their internal card data. And so, weekly, they're publishing updates on spending. And back at the beginning of April, we looked at how much-- how far below the baseline from 2019 airline spending was. It was still about 40% below that baseline. And furniture spending was about 50% above its baseline, going back to 2019.

Well, we got an update in a note that hit our inbox yesterday. And we continue to see the convergence between furniture spending coming down, compared to the last two years, and airlines spending coming up. It is still 18% below 2019 levels, as of May 22, but this convergence is really, I think, as far as I can see, two clean data sets that show the abnormalities that emerged from consumer habits during the pandemic. This is the convergence towards some kind of normality.

Now will we get to the singularity, as it were, where both numbers are entirely flat compared to 2019 comps? It is unclear. I think the lack of international travel-- we talked to Helane Becker earlier this week, analyst over at Cowen. The lack of international travel for the airline sector challenges it to get spending all the way back to 2019 levels for maybe the next year or two. Because, again, that is a major driver of the revenue calculation, certainly the higher value seats for those airlines, business travel another question there.

But I think that watching these numbers come together gives us a sense of where consumers think they are at in the cycle because, I mean, my read on furniture spending-- I'd be curious of you guys' take on this-- is it also indicates-- I mean, those are consumer durables. Those are larger ticket purchases that indicates, basically, how much time people think they're going to be spending at home.

Part of the reason that people can let things slide at home during normal times is that they're at the office most of the time. And that has not been the case over the last year and a half. And so, a continued desire to invest in their home is a proxy for, in my view, how much time people believe they'll be spending in their home. And so, as we see that spending come off, also shows how much there is a desire to return or a requirement that folks return to the office.

JULIE HYMAN: Yeah, I think that's a really-- that's a great point. I mean, people sitting around and staring at their four walls, as we know, really spurred some furniture buying. Something I'm also curious about in that number, Myles-- and I don't know how Bank of America calculates this, but, you know, how much of that increase in spending is an increase in prices because of things like lumber, for example, the raw materials to build furniture as well, which is a separate question. I know it's not about spending in this case, but it is something I'm still curious about.

And I'm also curious about the mix sort of between higher ticket and lower ticket furniture items as well, how that's playing out, considering that we appear to have seen the bulk of the wage pressures over the last year and the higher end of the income spectrum, and now we may be seeing some on the lower end of the income spectrum. Like, are we going to see a surge in IKEA buying or something like that in the wake of all this? I don't know the answer to that, but I'm interested in all the sort of composition of the furniture as well.