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Understanding real, per capita personal consumption expenditures

Economics studies what is produced, how, and for whom, but always under the assumption that the desire to consume goods and services motivates work and trade. Real, per capita consumption is often the most informative consumption measure because it adjusts for inflation and population growth. Total nominal consumption would tend to rise as the price level or population rises, even if individuals aren’t consuming more.

The FRED graph above shows that real, per capita consumption and each of its components—durable goods, nondurable goods, and services— have risen consistently over the long run, except for short retrenchments during recessions. It shows that average American consumption is more than 4.5 times as great at the end of 2023 than in 1950.*

In addition to these long-run trends and retrenchments during recessions, the first graph shows that consumption was unusually volatile during the COVID-19 pandemic. Total consumption and service consumption declined substantially, but there were seemingly less-pronounced movements in consumption of durable and nondurable goods. Unfortunately, the differences in scale among the four measures of consumption make it difficult to see relative changes in consumption expenditures.

The second FRED graph helps us see relative changes in real expenditures in these three components of consumption, which are normalized by dividing each by total consumption. There’s a definite decline in the share of nondurable goods consumption over the whole sample, as well as a large increase in the share of durable goods consumption. The share of service consumption is more complex: It rises from the 1940s to the early 1990s and then declines. Service consumption is also unusual in that the share of service consumption has often risen during recessions.

Consumption patterns change according to consumer preferences, technology, income changes, and credit availability. Chien (2015) shows that using nominal shares of service consumption, rather than real service consumption, indicates a fairly pronounced and steady rise in service consumption. In other words, a rise in the relative price of services drove much of the rise in service consumption. The reason service prices rose relative to nondurables or (especially) durables is that productivity increases were faster for manufactured goods (durables and nondurables) than for services. That is, technological advances improved our ability to make televisions, computers, and cars much more than they improved our ability to provide medical exams, give college lectures, or babysit children.

Finally, to better see the behavior of relative consumption around the COVID recession of 2020, our last FRED graph illustrates real, per capita expenditures from the first quarter of 2019 through the first quarter of 2021, with each series normalized to take the value 100 in the first quarter of 2020. During this episode, service consumption declined substantially, while consumption of nondurables declined modestly, and consumption of durables stayed steady. It’s easy to understand that consumers’ desires to avoid services (i.e., human contact for restaurant meals or massages) would reduce service consumption during COVID. If people aren’t going out, they might also postpone purchases of some nondurables, such as clothing and footwear. Finally, people stuck at home will still want entertainment, so purchases of computers, televisions, and durable exercise equipment remained fairly steady.

*Examples of durable goods are vehicles, furniture, computers, and software. Some non-durables are paper and plastic products, clothing, footwear, and food. Services include entertainment, healthcare, auto repairs, landscaping, and babysitting.

How these graphs were created:
First graph: Search FRED for and select “Real personal consumption expenditures per capita.” From the “Edit Graph” panel, open the “Add Line” tab to search for and select “Real personal consumption expenditures per capita: Goods: Nondurable goods.” Repeat for “Real personal consumption expenditures per capita: Goods: Durable goods” and “Real personal consumption expenditures per capita: Services.”
Second graph: From the first graph, use the “Edit Graph” panel’s “Edit line 2”: Under “Customize data” search for and select “Real personal consumption expenditures per capita” and apply formula a/b. Repeat for lines 3 and 4. Finally, click on “Edit line 1” and delete it.
Third graph: Start from the first. From the “Edit Graph” panel and then “Edit line 2,” select “Index (Scale value to 100 for chosen date or recession)” In the “units” box and select “US recession” with “2020-02-01 Start.” Select “Copy to all” to the right of the units selection. Click on “Edit line 1” and delete it. Above the graph, select “2019-01-01” and “2021-01-01″ as the sample dates.

Suggested by Christopher Neely.

Saving for retirement

Tracking the growth in IRA balances

The FRED Blog has discussed the growth of 529 saving plans to pay for college expenses. Because withdrawals became tax-exempt in 2001, their value soared. Today we discuss another type of saving plan with tax benefits: individual retirement arrangements (IRA) plans.

The FRED graph above shows data from the Board of Governors of the Federal Reserve System reporting the dollar value of savings held in tax-advantaged retirement plans:

  • IRA accounts: This is the generic name of a whole family of retirement plans. In some plans, the contributions are tax-exempt and in others it is the withdrawals that are tax-exempt.
  • Keogh accounts: This is a seldom-used name for retirement plans for those who are self-employed.  Like 529 saving plans, their name is associated with the federal law that codified them.

The data in the graph have been adjusted for consumer price inflation to accurately compare their change over time. Notice how, between 1984 and 1991, the value of individual retirement accounts increased by $884 billion, or 146%. That’s more than double in 7 years.

Also notice the bump in the value of all IRA accounts during 2020, the onset of the COVID-19 pandemic. At that time, the US Congress granted additional tax benefits to unplanned, albeit temporary, withdrawals. However, since saving is the difference between income and spending, reduced spending during those uncertain times resulted in fast growth in overall retirement saving account balances. And these remained elevated for quite some time afterward. Learn more about excess savings from Masataka Mori and Juan M. Sánchez.

How this graph wase created: Search FRED for and select “IRA and Keogh Accounts: Total.” From the “Edit Graph” panel, select the “Line 1” tab to customize the data. Start by searching for “Consumer Price Index for All Urban Consumers: All Items in U.S. City Average.” Click on “Add” and then type the formula (a/b)*100. Last, use the “Format” tab to select “Graph type: Bar.”

Suggested by Diego Mendez-Carbajo.

Comparing household assets across the wealth distribution

How different are the portfolios of the wealthy from the portfolios of the less well-off?

The Board of Governors of the Federal Reserve System publishes the Distributional Financial Accounts of the United States, which can help us understand the distribution and composition of net worth for US households. Today, we look at the assets of households in various wealth brackets.

The FRED graph above plots total real (inflation-adjusted) assets for the households in different percentiles of wealth over time. Notice how the households in the 90th-99th percentiles (green line) hold roughly the same amount of wealth as the households in the 50th-90th percentiles (red line), even though the former are just 9% of the population and the latter are 40%. In total, as of fourth quarter 2023, they held $18.7 and $17.4 trillion, respectively. The top 1% of US households (purple line) also hold close to the same amount: $14.8 trillion.

The top 0.1% of households (teal line) hold $6.5 trillion in assets, which is more than double the total amount of assets held by the bottom 50% (blue line, $3.1 trillion). These two groups had been much closer in terms of total wealth until they began to diverge in the late 2000s.

Now we dig into the types of assets these different groups hold in their portfolios: Our first major distinction is between nonfinancial assets (such as housing, automobiles, and other vehicles) and financial assets (such as stocks, bank deposits, and pension entitlements). The second FRED graph plots the share of nonfinancial assets by wealth group. Notice the inverse relationship between level of wealth and share of nonfinancial assets: On average, about 70% of the assets of the least wealthy tend to be their homes and vehicles. Nonfinancial assets become a progressively smaller share of assets as wealth increases and financial assets become more dominant.

The third FRED graph confirms the previous point. It plots the share of real estate in total assets for the different wealth percentiles. Again, there is a very clear negative relationship between the importance of real estate and one’s level of wealth. As of fourth quarter 2023, the bottom 50% of households hold just over 50% of their assets in real estate; the top 1% and 0.1%, respectively, hold 13.1% and 9% of their total assets in real estate.

The final FRED graph shows how much financial wealth is held in equity, both corporate and noncorporate. We see a very clear positive correlation between the level of wealth and the share of financial assets held in the form of equities: The top 0.1% of households hold about 70% of their financial wealth in equities versus 15% to 20% for the bottom 50% of households.

The share of households’ equities changed in a variety of ways during the COVID-19 pandemic, between first quarter 2020 and fourth quarter 2023:

  • The 90th-99th percentiles had a large jump in the percentage of their financial assets held in equities, from 37.0% to 47.2%.
  • The bottom 50% and 50th-90th percentiles also had a jump, from 14.8% to 19.3% and 19.3% to 23.8%, respectively.
  • The top 1% and top 0.1% both had smaller increases in their share of financial assets held in corporate equities, from 69.2% to 72.8% and 75.7% to 77.9%, respectively.

A little background on the data and the source: For several decades, the Board of Governors of the Federal Reserve System has collected data on the Financial Accounts of the United States, which measure the financial position and portfolio composition of different sectors of the US economy, from financial institutions to households. These data are available in FRED. More recently, the Board started publishing data on the Distributional Financial Accounts of the United States, which is a quarterly dataset that estimates the distribution of US household wealth since 1989, combining aggregate measures from the Aggregate Financial Accounts and disaggregated data from the Survey of Consumer Finances.

How these graphs were created: Search FRED for the following series: First graph: Total Assets held by the bottom 50%. Use the “Edit Graph” panel to search for and add Consumer price index for all urban consumers: all items in the U.S. city average. In the formula bar, insert 100*a/b. Use the “Add Line” tab to repeat this for the other wealth groups: 50th to 90th, 90th to 99th, top 1%, and top 0.1%.
Second graph: Percentage of nonfinancial assets help by the top 0.1%. Use the “Edit Graph” panel to search for and add Total assets held by the top 0.1%. In the formula bar, insert 100*a/b. Use the “Add Line” tab to repeat this for the other wealth groups. Third graph: Real estate held by the top 0.1%. Use the “Edit Graph” panel to search for and add Total assets held by the top 0.1%. In the formula bar, insert 100*a/b. Use the “Add Line” tab to repeat this for the other wealth groups. Fourth graph: Corporate equities and mutual fund shares held by the top 0.1%. Use the “Edit Graph” panel to search for and add Equity in noncorporate business held by the top 0.1% and Financial assets held by the top 0.1%. In the formula bar, insert 100*(a+b)/c. Use the “Add Line” tab to repeat this for the other wealth groups.

Suggested by Miguel Faria-e-Castro and Samuel Jordan-Wood.



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