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Minnesotans Slow Down Consumption as Economy Levels Out from COVID-19 Disruptions
Minnesotans are showing signs of slowing down their consumption as the economy begins to stabilize after the disruptions caused by the COVID-19 pandemic, according to recent federal data released on Wednesday. The U.S. Bureau of Economic Analysis (BEA) reported that consumer spending in Minnesota increased by 8.3% in 2022, amounting to approximately $302 billion. This growth aligns with the national trend of consecutive years of growth following a decline in 2020. However, the data also indicates a slowdown in spending, as the increase in 2022 was lower than in the previous year, both in Minnesota and across the country. Additionally, there has been a shift in consumption from goods to services, a sector that came to a halt during the peak of the pandemic.
Erick Garcia Luna, the regional outreach director at the Minneapolis Fed, expressed that the spending slowdown is a positive development, stating, "This is all a big readjustment." After experiencing a nearly 13% increase in spending between 2020 and 2021, Americans spent 9.2% more in 2022, according to the BEA. The main drivers behind the $17.5 trillion increase in spending nationally were housing and utilities, health care, and food services and accommodations. In Minnesota, housing and utilities also played a significant role in the spending surge.
Steven Zemanek, an economist at the BEA, highlighted that housing and health care consistently rank at the top of the list in terms of where people are spending their money. He explained, "You can go and spend to your heart's content at a restaurant, and you're really going to have to go to a lot of expensive restaurants for it to equal the expenditures that you're paying for your rent."
The national spending trend has continued, with a $83.6 billion increase in August. Personal income also rose by $87.6 billion in the same month, including a $46.6 billion increase in disposable income, partly due to wage increases. However, the prices of essential goods and services, such as housing, utilities, gas, and health care, continue to rise, contributing to an increase in poverty. The Consumer Price Index (CPI) for all urban consumers rose by 0.6% in August, primarily driven by rising gas prices, according to the U.S. Bureau of Labor Statistics.
Tyler Schipper, an associate professor of economics at the University of St. Thomas, acknowledged that, on average, people are doing better financially. However, he emphasized that high prices for essential items like food and gas remain economic concerns for consumers, stating, "Many people are not sitting down and trying to look at the big macroeconomic picture. They are rightly concerned about their personal economies."
Ongoing financial pressures and fears of an impending recession are also influencing how people spend and plan their finances. A global Deloitte consumer survey conducted in August found that 44% of U.S. respondents are delaying large purchases, and less than half feel they can afford to spend money on things that bring them joy. However, the survey also revealed that most consumers, regardless of age, gender, or income level, continue to make purchases to treat themselves, ranging from food to electronics.
Scott Rohr, co-owner of The Yarnery in St. Paul, shared that the yarn shop has made an effort to offer products at various price points to accommodate different customer preferences. He observed that customers tend to shop across the price range, opting for less expensive yarn for practical items like machine-washable sweaters for children, while splurging on hand-dyed fibers for special projects for themselves. Rohr explained, "Yarn is, of course, a discretionary expense, but I think that for a lot of people during the pandemic especially, it fulfilled this need for calm and comfort. What people spend on this craft, people think of that as a self-care kind of thing. It doesn't feel like frivolous spending to people."
Despite ongoing uncertainties and concerns about a potential recession, The Yarnery has managed to navigate through the pandemic with online sales and deliveries. Rohr expressed optimism, saying, "We all keep waiting for the recession that may or may not come. We're just doing the best we can, and so far, so good."
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