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Here’s a more detailed version of the analysis in my latest BW story. Right now it looks like personal consumption expenditures have fallen by only 0.4%, or $40 billion, over the past year (that’s nominal dollars). For an economy the size of the U.S., $40 billion is a rounding error.
But that number didn’t seem right, given the devastation in the economy, so I took a closer look. I started with an advantage—I’ve written about these numbers before. When we hear the words ‘consumer spending’ or even ‘personal consumption expenditure’, the image that comes to our mind is a household buying food, clothing, televisions, haircuts, cars, etc etc—all the things we buy in our daily lives. Let’s call these ‘pocketbook’ expenses—we make the decision about whether to reach into our pocketbook or wallet and pay for them.
However, there are a lot of categories in the BEA’s definition of personal consumption expenditures which are not ‘pocketbook’ expenses. In particular, there are four important categories in PCE which shouldn’t arguably shouldn’t count as personal consumption.
Meanwhle pocketbook spending—all the things that we normally think of as consumer spending—is down by 3.1%, or $200 billion, over the past year. This is by far the biggest year over year plunge since 1959, when the current data series starts. In fact, measured on a year over year quarterly basis, the fourth quarter was the first time that pocketbook spending fell, in nominal terms.
In the coming weeks and months, hundreds of thousands of jobless Americans will exhaust their unemployment benefits, just when it's never been harder to find a job.