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The History of the GDP and Consumer Spending

By JLP | April 15, 2010

Consumer spending has always been an important part of our nation’s GDP. In fact, consumer spending currently makes up about 70% of the GDP. That’s a lot.

Has it always been that way? I wanted to find out so I did some research and found the GDP and Other Major NIPA Series, 1929–2009: II (PDF) on the Burreau of Economic Analysis’ website. The numbers are in that report but I still had to do some calculations to find out the relationship between the GDP and Consumer Spending. Once I ran the calculations, I created this graphic:

Although it’s hard to tell, consumer spending has grown to become a bigger slice of the GDP.

Here are the hard numbers if you’re interested:

From 1929 through 2008…

• the GDP has an annual growth rate of 3.32% (through 2008)

• consumer spending has grown at 3.22%.

But…

From 1979 through 2008…

• the GDP has an annual growth rate of 2.79% (through 2008)

• consumer spending has grown at 3.06%.

So, in recent years, the gap has narrowed and consumer spending has become a more significant part of our GDP. This is due to the fact that manufacturing jobs are moving overseas and are being replaced by service jobs.

The troubling part to all this (at least to me) is that if consumers are up to their ears in debt and are working to pay down their debts, how can they keep up their spending? Not only that, but if consumers were borrowing in the past in order to fuel consumption, where are we headed for the future?

Thoughts?

Topics: Economics | 10 Comments »


10 Responses to “The History of the GDP and Consumer Spending”

  1. JD from A Penny Saved Says:
    April 15th, 2010 at 2:18 pm

    You are correct that historically the rates appear higher today than in the past. However there have been times when it has been higher (i.e. 1929-1937) than it is today. The question is whether this is a trend or an aberration.

    If you notice, the years 1942-1945 showed a great decrease in consumer spending – World War II, and its great government spending to supply the war effort. Government spending, which is increasing, could cause a similar dip in consumer spending.

    I would be curious to see what 2009 and 2010 look like with the recession happening – I am sure consumer spending took a dip. Also, if taxes rise significantly (VAT Tax?), we will probably see a decrease in consumer spending.

    Well done graphs and charting – Thanks!

  2. Kirk Kinder Says:
    April 15th, 2010 at 11:51 pm

    The recent upturn in consumer spending coincided with a downturn in savings. I guess we just don’t want to save as Americans. I still think GDP can’t get to where it was in 2006 and 2007 since a large part of that was Mortgage equity withdrawals. This is also probably why consumer spending made up a bigger part of GDP in the 2000s.

    I really thought that Americans would figure out that true wealth is created from savings and investment. I guess I was wrong. We need those flat screen tvs more, I reckon.

  3. John Says:
    April 16th, 2010 at 5:58 am

    Maybe if workers actually had an increase in there real income during the 2000’s, they would have been able to increase consumption. On top of that, most now have to fund their own retirements and pay more for medical care. Looks like that trickle down economics is working just the way you want it to, more money in the hands of the wealthy, and the rest of you are on your own.

  4. JLP Says:
    April 16th, 2010 at 9:04 am

    John,

    One could also argue that the US is overregulated and that the environmentaltists have made it so tough to do build new plants in the States that companies are saying, “Forget it,” and building and moving overseas.

    One could also argue that the first decade of the 2000s was dealing with the hangover of the .com bubble and 911.

    Also, don’t underestimate the impact that unions and their artifically high wages have had on company decisions to move jobs elsewhere.

    What I’m saying is there’s PLENTY of blame to go around.

  5. DennyM Says:
    April 16th, 2010 at 9:05 am

    GDP is a highly flawed & arbitrary “statistic” …heavily manipulated by government politicians and bean-counters.

    One cannot draw any objective ‘conclusions’ about the U.S. economy from GDP.

    People luv to discuss GDP because it provides the illusion of simple but ‘deep’ knowledge about the fundamental economy… and the ability to somehow control/steer that national economy.

    Suppose you could really measure current and historical “Consumer Spending” to ten decimal places accuracy (??)

    …. what would/could you actually do with that data ???.

  6. Mark Says:
    April 16th, 2010 at 9:50 am

    @ JD: Consumer spending did not decline during 1942 – 1945. It declined as a percentage of GDP. But GDP rose so fast that consumer spending did not keep up.

    Similarly: In 1929 – 1933, GDP fell, and consumer spending did too. But not as fast.

    Consumer spending may lag GDP, so we will see it fall as a percentage of GDP from 2010 to 2012. Then we will read articles about how Americans are saving again (even though they are actually increasing spending!).

  7. JLP Says:
    April 16th, 2010 at 12:29 pm

    Denny,

    I understand the government’s motivation to manipulate numbers and indicators (the CPI comes to mind). However, what would use to gauge the economy?

  8. John Says:
    April 16th, 2010 at 7:26 pm

    How can you say that unions artifically create higher wages, when in the 1970’s the average CEO made 30 times the average workers wages and today they make 300 times? In today’s Business Week they state that in 1996, 10% of the workers were unionized, today it is down to 7.2%. That hardley seems a large enough percentage to greatly affect wages. Until the shift of income and wealth is reversed, comsumption will not be able to grow.

  9. Stephan Says:
    April 22nd, 2010 at 9:26 am

    Great post, and it definitely points out the problem that the American economy could have moving forward. If consumer spending made up 70% of GDP before the recession and spending habits have changed because of job loss, property value drops, etc, then what will happen to the US economy moving forward? Realisticly, unless consumer spending goes back to what it was before the recession, the US economy should not be expected to grow at the rate it did over the past 30 years. The flip side of that though is that our rampant consumer spending and increased debt load partly was responsible for the financial situation we are in now. Looks like a lose lose situation to me.

  10. Lindsay Downs Says:
    December 23rd, 2011 at 1:32 am

    I think it’s funny that a year and a half later, people are still talking about this exact situation. Quote from a book I’m reading (published the end of 2010):

    “…It’s likely that Americans will be spending less this year – and that’s a terrifying thought for citizens who have been taught that shopping is a Patriotic act.”

    What I’m looking for now are the real numbers. What did spending ACTUALLY look like in all of 2010 compared with 2008 and 2009? This author suggested it would go down, but I would like to know if it did, or if people (like our family) just continued to spend (and charge) the way they did in years before.

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