Dips in durables and nondurables : Tracking consumption dynamics since the Great Recession
Household consumption contributes about 70% of total U.S. production. So, movements in consumption over time and the make-up of products purchased are essential for understanding GDP.
In general, final consumption is procyclical. That is, in good times people spend more and in bad times they spend less. During the recent 2007-09 Great Recession, real personal consumption expenditures dropped by 2.4% from pre-recession levels. But did people cut back the same amount on spending for all goods? The first graph splits aggregate consumption into durable and nondurable goods: Durable goods include, for example, cars and furniture and nondurable goods include, for example, food and clothing. We can see that consumption of durable goods is more volatile. During the recession, durable goods expenditures dropped by 12%, while nodurable goods expenditures dropped by 3%. (This doesn’t add up to the total 2.4% drop because there’s also the consumption of services, which isn’t shown here.)
The second graph separates durable goods expenditures into finer categories.
Among these durable goods categories, expenditures on motor vehicles and parts dropped the most—by as much as 24%. Expenditures on furnishings and durable household equipment follow, with a drop of 16%, although this category hits bottom at the end of the recession. Both categories recovered to their pre-recession levels only after 2013. In contrast, expenditures on recreational goods and vehicles and on other durable goods decreased only mildly.
Why did vehicle sales drop so much? One reason could be that a car purchase requires a larger payment than other durable goods. Another explanation is that the decline in house prices deteriorated households’ credit scores, making it more costly to finance a car purchase with a loan. The sinking housing market also would have driven down demand for furnishings and durable household equipment. And, simply, credit may have generally been more difficult to obtain.
Expenditures for nondurable goods fell by 4% on average, less than they did for durable goods. The third graph shows four categories. Interestingly, expenditures on gasoline and other energy goods slowly and consistently fell, hitting bottom in late 2012 and gradually recovering by 2016, which is likely due to the falling car sales shown in the previous graph.
Overall, expenditures related to vehicles and houses account for most of the drop in consumption in the 2007-09 recession.
How these graphs were created: All these series can easily be found in FRED using the Release View. From the FRED home page, select Releases from the main search box and click the link for gross domestic product. You’ll then see the sections of the GDP release. Select “Section 2–Personal Income and Outlays” and then “Table 2.3.3. Real Personal Consumption Expenditures by Major Type of Product, Quantity Indexes” (quarterly frequency). The resulting page will be a table with all the series associated with the real personal consumption expenditures release and all graphs can be made from this page.
First graph: Select “Durable goods” and “Nondurable goods” and click “Add to Graph.” Using the scroll bar at the bottom or the date range at the top, adjust the time horizon of the graph to start in 2006:Q1. From the “Edit Graph” menu, adjust the units to be “Index (scale value to 100 for chosen date)” and set the date to be 2007-01-01. Click “Copy to all” to copy these changes to all the series.
Second graph: Select the four subcomponents under the durable goods category and click “Add to Graph.” Follow the same steps as in the first graph to adjust the time and index base value.
Third graph: Select the four subcomponents under the nondurable goods category and click “Add to Graph.” Follow the same steps as in the first graph to adjust the time and index base value.
Suggested by Sungki Hong.
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