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On the importance of consumer durables

Consumption over the business cycle

Consumption is the largest part in a household’s expenses and, for that matter, the nation’s expenses as well. Therefore it’s natural that the movements of consumption through the business cycle are of particular interest: first, because it accounts for over half of GDP; second, because it’s an essential part of the well-being of households. But not all components of consumption have the same characteristics. The consumption of government services is typically left unmeasured and may in fact be unmeasurable. As for private consumption, we like to divide it into three buckets: services (such as hair cuts, movie tickets, and medical visits), non-durable goods (such as food, newspapers, and medication), and durable goods (such as cars, televisions sets, and bathtubs). As the graph shows, these three components typically fluctuate in the same direction, but not at the sample amplitude. Indeed, if a recession hits, households usually can postpone the purchase of a new refrigerator but not daily essentials. When the economy booms again, they can afford to catch up on all the durables.

The graph above shows this as a percentage change for each component. The graph below shows the change in dollars, and the three types of consumption seem to look much more similar. The reason is that durable purchases are on average smaller than the other two, but proportionally more variable. In absolute terms, the variability of the three happens to be similar, at least for the United States. The difference here is that the average growth of services is higher than the growth for goods.

How these graphs were created: For the first, search for “Real Consumption Per Capita,” check the three series, and add them to the graph. From the “Edit Graph” tab, change units to “Percentage Change from Year Ago” and apply to all. For the second graph, change all units to “Change from Year Ago.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: A795RX0Q048SBEA, A796RX0Q048SBEA, A797RX0Q048SBEA

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