Casey Mulligan asks:
So a year later, in September 2009, after living through a year of “disaster,” how did real consumption expenditure (one economists’ favorite measures of living standards) compare to what it was in September 2008?
He observes that consumption (as well as disposable income) were higher than they were a year ago.
Since we’re concerned with living standards, as opposed to economic activity, I thought it of interest to look at per capita consumption. Since population is available only on quarterly basis, I compare consumption per capita in 2009Q3 to that in 2008Q3.
Figure 1: Log personal consumption expenditure, in Ch.2005$ (blue) and linear time trend estimated over 1967Q1-2009Q3 period (red). NBER defined recession dates shaded gray, assuming recession ends in 2009Q2. Source: BEA, GDP 2009Q3 advance release, NBER and author’s calculations.
Per capita consumption is 0.3 0.9 percent (in log terms) below the level in 2008Q3. Moreover, per capita consumption is 6.5 6.1 percent below the 1967Q1-09Q3 trend (which grows at 2.9 2.2 percent per annum). [Corrections made 1pm Pacific]
Is that a disaster? Maybe not. But one wonders how much lower per capita consumption would have been in the absence of the actions undertaken by fiscal and monetary authorities around the world.
Update, 1pm Pacific
Thanks to confused for pointing out the monthly population series. Here is a plot of log montly personal consumption expenditures, and analogous trend:
Figure 2: Log monthly per capita consumption (blue) and 1967M01-2009M09 trend. NBER defined recession dates shaded gray, assuming recession ends in 2009M06. Source: BEA via FREDII, NBER, and author’s calculations.
Note that relative to September 2008, consumption is 0.65 percent lower (in log terms), and is 6.4 percent lower than the time trend.
Mulligan seems to be making the point that the recession was not so bad. It was, regardless of what the statistics may say wrt consumption. I think your analysis is on the mark here.
Menzie,
What does the graph look like if you remove government spending? Increased government spending, especially as a percentage of total spending, is actually a sign of lower living standards.
“But one wonders how much lower per capita consumption would have been in the absence of the actions undertaken by fiscal and monetary authorities around the world.”
One also wonders how much the long term future trendline has been pulled down in order to prop up economic activity today.
Isn’t (an estimate of) population available monthly?
http://research.stlouisfed.org/fred2/series/POPTHM
This is an unusual “gotcha” from Mulligan. One should note that quarterly declines in consumption are rarer than quarterly declines in GDP. We’ve had four in this recession. The last time we had any was in 1991. No recession on records going back to 1947 has had four (1973-1975 had three).
Year on year declines in consumption are even rarer. Consumption spending in this recession was down on a yoy basis for four straight quarters only turning positive in the most recent quarter. In quarterly records going back to 1947 there are only four other instances of negative yoy consumption: 1951, 1958, 1974 and 1980. In duration this is comparable to the 1974 decline which persisted the entire year. In fact consumption was lower in 2Q 2009 than 1Q 2007, which is the longest period (9 quarters) without an increase in consumption on record (the previous record was 7 quarters set in 4Q 1974). At its peak yoy consumption was -1.8% in 4Q 2008. This is only exceeded by 3Q 1951 which was -1.9%.
Most interesting is the annual data. Prior to this, on an annual basis, consumption has fallen only twice since WW II: 1974 (-0.8%) and 1980 (-0.4%). Consumption fell 0.2% in 2008 and is on track to fall perhaps 0.4% in 2009. This will be the first back to back decline in annual consumption since 1933.
Two points.
First, haven’t we been saying that the consumption-GDP ratio has been rising too much, too fast, for too long, that the ratio was unsustainably high and caused a massive and unsustainable current account deficit? Isn’t the trend line a mistake that needed to be ended? I do not view the fall in consumption as a blunder, I only wish it had been shared more equally.
Second, you use expenditures rather than the true flow of consumption. Subtract expenditures on durables and add back in the flow of services from durables and see if the “correction” isn’t a lot smaller.
I sometimes wonder if Professor Mulligan is not a literary creation of some 21st century Dickens’, a modern Uriah Heep. And of course, like a good Chicago economist, he ignores any inequality in those income figures.
He also likes to have it both ways. First, he has consistently denounced the policies of the Federal Reserve and Federal Government, especially since Obama’s inaugaration as unnecessary. Yet,because the slump has not been as bad it was feared last September perhaps arguably in part to the result of those very policies he disapproves of, he argure they were unnecessary.
rickstersherpa, what i argue is that chicago economists are unnecessary!
as for the serious matter, here is a case where aggregate patterns may well mask considerable individual impact. speaking entirely anecdotally, for instance, my consumption is completely unaffected by the recession: i’m still fully employed as a consultant, my rates are the same, and my consumption is the same.
but then again, 1/6th of american workers are un or underemployed: the odds that their consumption is anywhere close to as unaffected as mine are pretty slim.
that even 1/6th of american workers (plus the “fear affect” on those who still are employed) is sufficient to bring down per cap consumption is pretty remarkable, as mark sadowski notes.
A modern Uriah Heep? I don’t think so. Being wrong as consistently and thoroughly as Mulligan–ne plus ultra wrong, 100% of the time–requires a sort of genius. I’m perversely proud that I went to graduate with this world historical figure.
Why is per capita consumption meaningful? Wouldn’t median consumption be a better gauge of impact?
As a companion piece to this article, simply look at the stats for tax collections by State governments. Then ask: If earnings have strongly declined and if outstanding consumer debt has decreased, where does the spending come from from? Finally, note that something does not add up.
the previous commenters are unto something here. I just got off the phone with an officer of a large public agency in CA. Taxable sales in one of the largest and most economically diverse and stronger counties in Northern California dropped by 26% year over year in Q209, and remained at about same levels during Q309, despite wasteful and economically inefficient government incentives like cash 4 clunkers and homebuying credit. This was the largest drop in taxable sales in recorded history. Taxable sales are a very good proxy for real consumption of real people. True that services are not taxed, and services are also a big part of consumption, but the important thing is that this is a true apples to apples comparison. Real people are consuming much less, particularly the middle and lower income people, I am sure you read that article in Bloomberg on Walmart seeing lines of people at midnight waiting for their paychecks/government welfare funds to be available. People are starting to starve. Some economists may want to take a break from their elegant modeling and regressions and what not, come out of their pristine offices, drive a little while, walk downtown, the inner city and the exurbs, and check reality. Hopefully they may come across one of the estimated 37 million Americans that are poor these days and ask them about their fabulous consumption patterns. Just make sure you ask from a 100 feet distance.
I agree with RicardoZ. What happened to private personal consumption expenditures? Also, B.B. makes some good points. What happened to private personal consumption after correcting for durable goods (which is probably distorted by cash for clunkers)? What would the trend look like if it were adjusted for the fact that we were living well beyond our means in the last years (up to 2007)?
RicardoZ: This series is personal consumption, and does not include government spending on final goods and services. Don: You might wish to take out personal consumption spending that was due to “Cash for Clunkers”, but that would only make the Q3/Q3 drop-off bigger.
B.B.: Yes, many of us have argued that consumption was too high as a share of GDP to be sustainable. Here, I am making the positive (as opposed to normative) point that consumption per capita has indeed fallen. I’m not sure how I’d go about reliably imputing the service flow durables (would need a good measure on the stock, for instance), but I do know per capita services consumption is estimated to be 0.5 percent lower in 2009Q3 than a year earlier; and 8.5 percent lower than the services trend.
Kaleberg: I’m not certain median consumption is more relevant, but it certainly would be very relevant. Do you have quarterly time series on this?
Hernan “El Perro”? Services are not taxed? Some are, I’m sure.
His picking Sept to sept is a very misleading measure in that it omits much of the decline in 2008 and captures some of the rebound in 2009.
monthly change in
real PCE
%
2008
jan .. -0.07
feb…. -0.21
mar… + 0.18
apr…. + 0.01
may …. -0.14
jun…. -0.10
jul….. -0.60
aug….. -0.03
sep….. -0.47
oct…. -0.30
nov…… +0.09
dec……-0.66…. this was the peak y/y drop of -2.2%
2009
jan….+0.58
feb….+0.09
mar….-0.23
apr…. -0.19
may…. +0.05
JUN…. +0.18
juL…. +0.19
AUG…. +1.09
SEP… -0.58 THIS IS THE DROP OFF AFTER CASH FOR CLUNKERS
iN 2008 REAL PCE FELL IN 10 OF 12 MONTHS
AND SO FAR IN 2009 IT FELL IN 3 OF 9 MONTHS.
To me it appears he has cherry picked the data to omit many of the worse months that occurred prior to sept 2008
The peak month was actually in Nov 2007 and Sept
2008 was 1.0% below that
the trough month was in apr 2009. and sept 2009
was 0.9% above that.
“Where’s the Consumption Disaster?”
Try checking the items that require the most currency denominated debt to purchase (housing and vehicles).
Is this also why the trade deficit with china has not fallen that much?
I agree with all the commentators pointing out the collapse in taxable revenues, which is far stronger data than the murky estimation that composes GDP. These figures smell strongly out of line.
You conclude your post saying
“But one wonders how much lower per capita consumption would have been in the absence of the actions undertaken by fiscal and monetary authorities around the world.”
Russ Roberts in a post titled “Degrees saved or created” wrote:
“NOAA announced (HT: Drudge) that October was the third coldest October on record. If it werent for global warming it would have been the coldest by far.”
I like Russ’s sense of humor.
Menzie,
You are great at analysis of past data, I would love to see more predictions.
Up until 2001, the long term trend was about 3% growth. Over the next 10 years, we will need to grow faster than that (say 4%) to get back to were the trend would have put us.
Over the next 10 years, do you see growth of 4, 3, or 2%?
I don’t know what a percentage “in log terms” means. Anyone care to explain?
Barandiaran’s post re climate change probably doesn’t belong in this excellant discussion and I’m sorry for responding to it. I hope I don’t set off a chain reaction.
From NOAA NDC
* The combined global land and ocean surface temperature for October 2009 was the sixth warmest on record, with an anomaly of 0.57C (1.03F) above the 20th century average of 14.0C (57.1F).
* The global land surface temperature for October 2009 was 0.82C (1.48F) above the 20th century average of 9.3C (48.7F), and ranked as the sixth warmest October on record.
* The worldwide ocean temperature was the fifth warmest October on record, with an anomaly of 0.50C (0.90F) above the 20th century average of 15.9C (60.6F).
* For the year to date, the global combined land and ocean surface temperature of 14.7 C (58.4 F) tied with 2007 as the fifth-warmest January-through-October period on record. This value is 0.56C (1.01F) above the 20th century average
How has the median per capita consumption been doing? That’s the number you have to watch.
Hello dear friends,
Can anyone help me ?
I need china’s quarterly data (from 2007 to 2009)on the following variables:
1. Personal Consumption expenditure
2. Personal disposable income
3. personal saving rate
thanks