The FRED Blog has discussed the very large share of employment and the very large share of consumer spending devoted to services. Today, we put this topic in a broader context by highlighting recent research from Ricardo Marto at the St. Louis Fed.

The FRED graph above shows BEA data indicating that, during the first quarter of 2024, the value of all services delivered by private businesses amounted to more than two-thirds of overall US economic activity.

Marto shows that the services sector also accounts for more than two-thirds of economic activity in most advanced economies and that similarly high proportions of total employment, hours worked, private firms in business, and household spending are connected to the delivery of services. He points to rising incomes and decreasing costs for producing goods as the reasons behind the growing share of the services sector in the overall economy.

For more about this and other research, visit the website of the Research Division of the Federal Reserve Bank of St Louis, which offers an array of economic analysis and expertise provided by our staff.

How this graph was created: Search FRED for “Value Added by Industry: Private Services-Producing Industries as a Percentage of GDP.”

Suggested by Diego Mendez-Carbajo.

Paying for the place where you live—categorized as “shelter” in the consumer price index—amounts to 36% of the overall cost of goods and services purchased by an average urban household during a month. However, putting a roof over your head also involves paying for creature comforts such as heating and cooling, utilities, furniture, appliances, and operations. Together, those expenses amount to an additional 9% of the overall consumer price index. Today we look at recent housing inflation for both shelter and making that shelter habitable.

The FRED graph above shows consumer price index (CPI) data on housing expenses organized in four categories:

• Shelter (dashed blue line) includes rent, owner’s equivalent rent of residences, lodging away from home, and home insurance.
• Services (red line) includes water, sewer, and trash collection.
• Furnishings and operations (green line) includes furniture, appliances, housekeeping supplies, and a variety of items and services.
• Energy (purple line) includes fuel oil, gas, and electricity.

We customized all the data to have a value of 100 in April 2020, the end of the COVID-19-induced recession, to facilitate the analysis of housing costs over time. The data plot shows that, over the past four years, shelter became 23% more expensive and the cost of furnishing and operations and paying for non-energy utilities kept roughly that same pace.

Energy inflation has been a different story: As of the latest available observation, heating, cooling, cooking, and running electric appliances is, on average, 33% more expensive than four years ago, although those costs have come down from their peak in January 2023.

How this graph was created: Search FRED for “Consumer Price Index for All Urban Consumers: Shelter in U.S. City Average.” Next, click the “Edit Graph” button and use the “Add Line” tab to add the other three CPI series: “Water and Sewer and Trash Collection Services,” “Household Furnishings and Operations,” and “Energy.” Next, use the “Edit Lines” tab to change the units to “Index (Scale value to 100 for chosen date)” and under “Select a date that will equal 100 for your custom index:” enter “2020-04-01.” Last, click on “Copy to all” to apply that unit customization to all series in the graph.

Suggested by Diego Mendez-Carbajo.

FRED recently added new data for the Visa Spending Momentum Index (SMI), which can offer new insights into US consumer spending behavior during the COVID-19 pandemic.

The FRED graph above shows two SMI data series* available between January 2014 and May 2024:

• • The red bars represent changes in the momentum of non-discretionary spending categories. Those include medical/health, food, and utilities—among several others.
  • The blue bars represent changes in the momentum of discretionary spending, which is everything else (except for spending on restaurants and gas).

The position of the bars indicates the direction of change in spending momentum: Bars above the zero line signal consumer spending was above trend, and bars below the zero line signal consumer spending was below trend. The length of the bars indicates how big those upswings and downswings were.

During March and April of 2020, discretionary spending markedly slowed down. It remained very close to its trend value for the next 12 months and surged above trend for almost a whole year afterward. Between March 2022 and the time of this writing, the Visa SMI has signaled either at-trend or below-trend discretionary consumer spending.

^* Learn more about the units of SMI and the definitions of discretionary and non-discretionary spending. Btw, Restaurant and gas spending are included in a total (all-categories) SMI.

How this graph was created: Search FRED for and select “Visa Spending Momentum Index: Discretionary: United States.” From the “Edit Graph” panel, use the “Add Line” tab to search for and select “Visa Spending Momentum Index: Non-discretionary: United States.” Next, use the “Edit Lines” tab to customize the data by typing the formula “a-100.” Do that for both series. Last, use the “Format” tab to change the graph type to “Bar.”

Suggested by Diego Mendez-Carbajo.