NCPA - National Center for Policy Analysis

Are We Really Consuming More Services?

October 13, 2015

A good indicator of future economic growth is strong consumer spending. A recent trend indicates an increasing in consumer spending for services, one of the three typical categories for consumer spending. However, spending more on services does not necessarily mean that more services were consumed.  Instead the increase could simply be due to the higher prices of services.

  • Spending share of services increased by 21 percent from 1959 to 2014.
  • Nondurable goods, such as food and clothes, declined from 40 percent to 22 percent during the same time span.
  • The real share of durable goods consumption, cars, furniture and appliances, nearly tripled from 1959- 2014

When evaluating for welfare, real consumption is more important than nominal.  Due to higher inflation rates on services and lower inflation rates on durable consumption goods the conclusion that Americans are dramatically spending more on services is faulty. Due to different inflation rates total consumer spending components are not necessarily good indicators of the real share of consumption in the U.S.

Source: YiLi Chien, "Are we Really Consuming More Services?" Federal Reserve Bank of St. Louis, October 1, 2015.

 

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