D**n, Consumer Spending is Not Economic Activity

This morning the BEA released the December  report on personal income and outlays. This is what appeared on Reuters:

Analysts polled by Reuters had expected consumer spending, which normally accounts for over two-thirds of U.S. economic activity, to rise 0.3 percent last month.

(my emphasis added).

No, no, no.  In a global economy, U.S. consumer spending does not necessarily translate into U.S. economic activity. If people are buying more imported television, cars, and clothing, you can get plenty of gains in U.S. consumer spending without corresponding gains in U.S. jobs.

This confusion between consumer spending and economic activity is not a harmless mistake. It goes right to the heart of the trade deficit, the budget deficit, and our inability to generate jobs.

Please note: I don’t mean to pick on Reuters.  But this is getting ridiculous.


  1. May all who ever favored leadership that promoted a service economy now step forward and buy services. I cannot fathom how else this economy can ever find solid footing.

  2. Regarding the validity of consumer spending statistics, Eric Janszen has an intriguing article over at iTulip suggesting that a rising share of GDP may simply be interest payments on consumer debt. I’d be interested to hear your take on his comments.


    – David

  3. Michael: In defense of Reuters, let me say: We in the news biz use GDP and “economic activity” as synonyms. Your pieces for Business Week have shown why the U.S. GDP figures are flawed. But a nuts & bolts wire story pretty much has to accept the premises emanating from BEA. More relevant for day-to-day reportage is another point you have made: The NIPAs count health care as consumer spending, when health care services aren’t consumer spending the way most of us think of it. Subtract health care and it’s far less than two-thirds of GDP.

  4. It’s an interesting question: who really has the power to change the terms of a public dialogue? The white house? The New York Times? A popular blogger or pundit? An academic consensus of the most prestigious universities? Who can say, “The term we ought to be using is not X but Y”?

  5. clay barham says:

    Seems to me that economic growth means that which is created and brought to market that has not existed before, a positive change created by innovators not afraid to make waves and wakes, as cited in Save Pebble Droppers & Prosperity on Amazon.com and claysamerica.com

  6. Consumer spending may not correlate to domestic production, but it sure correlates to domestic financial transactions of all sorts. And the latter is the “actual economy” as far as I can infer from most media “reporting” and public discourse.

    • There’s a piece of that is U.S. economic activity, but I question whether the size of that piece is measured accurately.

      • Of course “some” volume of financialization and intermediation is needed and welcome, but the US and in general the Western world has gone way overboard. The sense, or societal capacity to determine/negotiate a reasonable mix of productive activities, administration, and arbitrage has been lost or at least heavily undermined. I guess that’s the way all developed societies eventually go. The US, and indeed all Western nations, may be at a critical juncture here in the sense that essential feedback mechanisms are failing and/or are suppressed. I’m reminded of the failure of “Communism” which took a different shape, but as they say “history doesn’t repeat but it rhymes”. Failures of even earlier societies I must leave to the historically better informed. The rhyming pattern I see is a disengagement from productive activities (or crowding them out with overheads, administrative and otherwise) and suppression of feedback loops informing elites and decision makers that things are not going well.

  7. cm,

    Maybe so. The problem is, arbitrage and administration are just so profitable, with such high information cost for outsiders to understand. Short of a lot of people with integrity in those positions, I don’t see a way to avoid development of cruft without bust cycles.


  1. […] spending’ really makes up 40-45% of economic activity. I’ve written about that here  and […]

  2. […] ’pocketbook spending’ really makes up 40-45% of economic activity. I’ve written about that here and […]

  3. […] No, it doesn’t, Martin. Every time a journalist says that consumer spending accounts for 70 percent of total economic activity, he or she is misleading readers into believing that the U.S. economy cannot grow without the consumer taking the main role (see my earlier posts here and here).  […]

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