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TMFBro (< 20)

Is consumer spending really 70% of the economy?

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August 17, 2009 – Comments (1)

Not according to Michael Mandal, who writes at BusinessWeek.com that:

"[T]he category of 'personal consumption expenditures' includes pretty much all of the $2.5 trillion healthcare spending, including the roughly half which comes via government. When Medicare writes a check for your mom’s knee replacement, that gets counted as consumer spending in the GDP stats. At a time when we are wrangling over health care reform, it’s misleading to say that 'consumer spending is 70% of GDP,' when what we really mean is that 'consumer spending plus government health care spending is 70% of GDP.'”

Calculated Risk takes up this discussion, with a chart showing that while personal consumer expenditures (PCE) have grown from 63% to 70% of GDP over the past 40-plus years, that growth is due to the rise in health-care expenses, not Americans buying more cars, TVs, and iPods.

All that doesn't change the fact that people saving more and spending less, in the near-term, won't be helpful in an economy looking for a recovery. However, count me as somewhat skeptical that Americans' spending habits are permanently changed. Ask anyone who's tried to stick to a diet or a budget: Consumption habits die hard. If and when there is a recovery, I think many people will go back to their spending ways.

1 Comments – Post Your Own

#1) On August 17, 2009 at 11:40 AM, alstry (35.31) wrote:

A more interesting question is how much of the economy is government spending and those that benefit from government spending?

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