While consumers are spending, as shown in the chart above, there has been no sign of pent up demand. Real consumer spending on goods fell off its pre-2008 trend line during the recession and has since resumed its former pace with no indications that a surge in spending to make up for lost time is imminent.(Mark Thoma also picked-up on this idea)
What the above statement does not explain is the reason for the upward sloping cure in consumer spending -- and, most importantly, whether it was sustainable -- which I would argue it wasn't. According to Census data, real median household income was stagnant for the first decade of the 2000's. Additionally, household debt continued to increase during that decade, eventually reaching over 130% of total DPI for U.S. households. That number (household debt/DPI) has been increasing for the last 30 years at a more or less constant pace. In other words, I believe the data indicates the pace of consumption was unsustainable, and was financed as much by debt financing as income growth. As such, the fall off caused by the recession was in fact a healthy and much needed correction in consumer behavior
My 2 cents (inflation adjusted).
4 comments:
The origin of the phrase "my 2 cents" seems to come from 16th century England. So 2 cents would be .02 british pounds. If you calculate inflation from say 1550, that would mean, inflation adjusted, your 2 cents is worth about 5 pounds or about $8 at the current exchange rate.
The more you know...
So are you saying that Consumer Expenditures, or your 2 cents, were adjusted for inflation?
And I thought I was a smart-ass ...
You no doubt attract them. Some followed over from that place that has sunk into gloom and doom.
Regards,
EeDan
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