How much of the economy numbers are based on consumer spending?”
Ok, now I’m getting aggravated. On the front page of the NYT this morning, Peter Goodman wrote: Given that consumer spending has in recent years accounted for 70 percent of the nation’s economic activity, a marginal shrinking could significantly depress demand for goods and services, discouraging businesses from hiring more workers. And Martin Crutsinger of the Associated Press wrote Especially in the U.S., consumer spending is essential: It drives about 70 percent of economic activity — more than for most European nations and well above the rates in developing countries such as China. Both of these fine economics writers have fallen into a subtle but very important trap. They look at the category of GDP which the BEA calls ‘personal consumption expenditures’ and assume that it means what it sounds like: The money that persons, like you and me, spend on consumption. But in fact, ‘personal consumption expenditures’ in the U.S. is a grab-bag category which includes all sorts of money—lik
Economic activity in America plunged again in the first quarter of the year, but positive signs in one key indicator – consumer spending – could foreshadow economic stability later this year. Overall, the nation’s output of goods and services declined at an annual rate of 6.1 percent in the period of January to March, according to preliminary numbers released Wednesday by the Commerce Department. That was almost as bad as the fourth quarter of last year, but the report showed a crucial difference. Where consumer spending tanked in the fourth quarter, it held up in the most recent period with a 2.2 percent annualized gain. That sign of resilience was punctuated earlier this week, as a separate survey released Tuesday showed a solid rise in consumer confidence. The implication, many economists say, is that the second quarter should see a smaller drop in gross domestic product (GDP), with stabilization or modest growth improvement after that. “Probably the worst is behind us in terms of r
