A recent article from the Washington Post focuses on “YOLO spending” by consumers and how that may relate to the low saving rate among said consumers. The author does a nice job providing various statistics and anecdotal examples related to the thesis, and mentions spending on vacations and entertainment as examples of such spending. And with inflation still hovering above 3 percent the first three months of 2024, YOLO-spending may help explain that, too.
The YOLO-thesis makes sense. As noted by Macrosight, the Hungry Beast is ravenous and consumer spending was strong in 2023. And, as the WAPO article mentions, consumer spending was quite robust in February (as mentioned in last week’s post). Not coincidentally, the saving rate for American households has been low, hitting 3.6 percent in the month of February (which the WAPO article also mentions).
Yet, when it comes to the macroeconomy it is easy to mistake “recent trends” for some new fundamental change in the macroeconomy. So, to investigate YOLO-spending further, let’s look at some data!
To Spend or Save?
Figure 1 displays the personal saving rate for the United States from January 2000 through February 2024.
Looking at the end of the time series, one can see what the WAPO article is talking about—the saving rate hit 3.6 percent in February, which is below the longer-run trend of 5.2 percent (2000 to 2019). One can also see the notable spikes in the saving rate in April of 2020 and May of 2021. Not coincidentally, those dates coincide with the CARES Act of 2020 and the American Recovery Plan of 2021 (both mentioned in this post).
Over the past two years, the saving rate has averaged 4.3 percent, with a post-Covid low of 3.0 percent in both September and October of 2022. The last time we observed such low saving rates was pre-Great Recession. Between January 2005 and April of 2008, the personal saving rate averaged 2.5 percent, with a low of 1.4 percent annotated on figure (which also represents the low going back to 1959).
So, yeah, personal saving is pretty low. And while 3.6 percent is low, it could still go lower. Let’s see what this might tell us about YOLO spending.
Party Time?
To assess the potential state of YOLO spending, Table 1 displays the sub-components (adjusted for inflation) of consumer durables, nondurables and services (each defined towards the end of this post). For each category, the table shows the annualized month-to-month average growth rates over each of the past four years as well as the “long-run” average from 2007 through 2019.1
I have highlighted in blue what might best capture more discretionary or YOLO-related spending—expenditure on recreational goods and vehicles, recreation services, transportation services, and food service and accommodation, a.k.a, going out to eat and drink.2
Consider each category in turn:
Recreation goods and vehicles: In three out of the past four years, the average growth of this category has been above the long-run average. The rates for 2020 and 2021 are not a surprise at this point (chronicled here and here, among other posts on this blog). Yet, after a general slow down in 2022, spending on this sort of fun stuff has jumped back above the long run average. YOLO indeed!
Transportation services: For this category, spending in 2023 was pretty on target relative to the 2007-2019 average. Though relative to the decline that occurred in 2022, spending on transportation rebounded in 2023. 2021 saw a massive spike in this category. We cannot see much evidence of YOLO-spending with this category.
Recreation services: spending in 2023 is above the long run average of 1.9 percent (also the average in 2022). 3.8 relative to 1.9 is enough of a jump, in my opinion, to suggest some YOLO-spending tendencies. (In 2021, like transportation, this category was on fire.)
Food services and accommodations: this category was well-above the long run average in both 2022 and 2023. Such numbers support the idea of YOLO spending, consistent with more travel (hotel stays) and dining out.
Of course, these categories are still pretty general, and while the average for transportation services, for example, may be consistent with history, it may be the case that a sub-component of that—such as air travel—would reveal YOLO-tendencies. So, let’s look a little closer at some of the components of the consumption categories.3
Get your Tickets!
Figure 2 displays spending on air transportation, amusement parks and campgrounds, and live concerts. These data are reported by the BEA at the annual frequency and are shown adjusted for the effects of inflation.
A few things stand out in this figure:
Air transportation has definitely surged the past couple of years. While it makes sense this category would rebound after Covid-19, the amount of air travel in 2023 (about $154 billion) was 40 percent higher than the amount for 2019 (about $111 billion). The increases shown on the graph for 2022 and 2023, in particular, represent increases of 22 and 8 percent, respectively (the average from 2007 to 2019 was 3.3 percent). This series certainly supports the notion of YOLO-spending.
Spending on live entertainment, amusement parks and campgrounds, have also increased the past couple of years. Spending on live entertainment jumped 42 and 20 percent in 2022 and 2023, respectively; while spending on amusement parks and campgrounds increased by 22 and 5 percent over those years.
Yet, one can also see the evolution of these series are different than air travel. The amount spent in 2023 (about $39.5 billion) on live entertainment is only about 4 percent higher than the amount spent in 2019 (about $37.9 billion). For amusement parks and campgrounds, spending in 2023 (about $70.4 billion) was actually 2 percent lower than in 2019 (about $71.9 billion). So yes, these categories have increased a lot the past couple of years. But, the amounts being spent are about equal to the amounts spent in 2019. Spending on these categories, in other words, appears to be “getting back to normal,” an idea that Macrosight has emphasized before.
YOLO’d-out
Where does this cursory data analysis leave us with the YOLO-thesis? I think that, at first glance, there is a reasonably compelling argument for it, especially if one looks at the growth rates displayed in Table 1 and the air travel series shown in Figure 2.
But, it is possible the YOLO-narrative is a bit over-wrought. The growth rates shown in Table 1 for 2023, in particular, may be capturing what we see for live entertainment and amusement parks in Figure 2—our spending on most things may simply represent a return to what were doing prior to Covid-19.
Data on these sub-categories are only available back to 2007, as reported in Table 2.3.6. “Real Personal Consumption Expenditures by Major Type of Product, Chained Dollars,” downloaded from bea.gov.
These categories include the following (from https://www.bea.gov/resources/methodologies/nipa-handbook/pdf/chapter-05.pdf):
Recreational goods and vehicles include: video, audio and photographic equipment, sporting equipment, sports and recreational vehicles, recreational books and musical instruments.
Recreation services include membership clubs, sports clubs, amusement parks and campgrounds, theaters and museums, live sports, concerts; services related to video, audio and photographic processing and equipment; gambling (casino and lottery).
Transportation services include motor vehicle and repair, leasing and rentals; railroad, intracity mass transit, taxicabs and ride-sharing, intercity bus, air transportation, and water transportation.
Food service and accommodation includes purchased meals and beverages away from home including fast food and full-service restaurants, alcoholic beverages away from home, and hotel and motel services.
Related to this point, it is certainly possible the other categories, such as clothing and footwear or furnishings, contain goods that would be the object of YOLO-spending. But for expediency, I focus on the four that seem to be mostly related to discretionary spending (whereas clothing and furnishings would include a lot of necessary spending).
Yes, those are inflation-adjusted numbers. Thanks for asking and sorry for any confusion.
Does figure 2 account for inflation