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Wall Street History
https://www.gofundme.com/s3h2w8
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01/19/2007
100 Years of Consumer Spending
The other day economist Robert Samuelson had an op-ed in The
Washington Post concerning a report by the Bureau of Labor
Statistics titled “100 Years of U.S. Consumer Spending.” So
since this seemed like a potential topic for this space I decided to
check it out myself at bls.gov.
There’s a lot of data to sift through so I winnowed it down to
some basics while looking at three periods in time 1901, 1950,
and 2002-03.
1901 population of United States 76 million
Avg. household income - $750
Avg. household expenditures - $769
Expenditures $327 food (42.5%); $179 housing (23.3); $108
clothing (14.0)
Hourly wages/mfg - $0.23 finance, insurance, real estate –
$0.50
Flour (5lb.) $0.13; round steak (lb.) $0.14; eggs (dozen) $0.22;
butter (lb.) $0.27
1950 population 150 million
Avg. household income - $4,237
Avg. household expenditures - $3,808
Expenditures $1,130 food (29.7); $1,035 housing (27.2); $437
clothing (11.5) $510 transportation (13.4), 59% now own cars
nationwide
Hourly wages/mfg - $1.59 finance, insurance, real estate –
$1.55
Flour $0.49; steak $0.94; eggs $0.60; butter $0.73
2002-03 population 281 million
Avg. household income - $50,302
Avg. household expenditures - $40,748
Expenditures $5,357 food (13.1); $13,359 housing (32.8);
$1,694 clothing (4.2) $7,770 transportation (19.1); $2,384
healthcare (5.9)
Hourly wages/mfg - $15.30 finance, insurance, real estate –
$16.35
Flour $1.56; steak $3.84; eggs $1.24; butter $2.81 [I didn’t use
milk as a category because the data wasn’t available for 2002-03]
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So what can you conclude by looking at the above?
For starters, the percentage spent on the bare necessities, food,
housing and clothing, has decreased from 79.8% of overall
expenditures to 50.1% over the past 100 years. But of course
transportation is now a big cost compared to 1901, and we are
spending large sums on things we take for granted these days,
such as TVs, travel, telephones and the Internet. As always,
though, it’s about priorities. As the BLS study notes, “High-
income families spend more in absolute terms than do low-
income families, but they also spend a lower share of their
income for food and other necessities. By assessing the
proportion of spending that households allocate for specific
items, it is possible to judge both national and regional income
distributions, as well as a society’s overall development level.”
In his op-ed piece, Robert Samuelson focuses on productivity.
“This triumph of mass consumption (since 1901) is usually
credited to technological breakthroughs, from the assembly line
to computer chips. But the whole process is also described as
productivity improvement. In 1900, 41% of Americans worked
on farms. If mechanization, new seeds and fertilizers hadn’t
meant that fewer people could produce more food, we’d still be
paying two-fifths of our income to eat. Labor productivity is
measured as output per hour worked. Whatever enables people
to produce more in a given time (machinery, skills, organization)
boosts productivity.
“That in turn raises our incomes – or gives us more leisure. It
also promotes domestic tranquility by muffling the competition
between government and personal spending. Slow productivity
growth virtually ensures a collision between the heavy costs of
retiring baby boomers – mostly for Social Security and Medicare
– and younger workers’ living standards. Higher taxes will bite
deeply into sluggish incomes. The reason: What seem to be tiny
productivity shifts have huge consequences.”
For example, Samuelson notes that in 2005 the U.S. economy
produced $12.5 trillion in goods and services, or GDP. If
productivity growth averages 2.5% a year, the economy reaches
$34 trillion in 2035 (in constant 2005 dollars), per Moody’s
Economy.com. But if productivity averages only 1% annually,
the GDP in 2035 would be just $23 trillion. This would be a
huge problem for younger workers forced to meet the baby
boomers’ retirement costs. [The last in that category would only
be 71 years of age by 2035.]
Samuelson worries that productivity growth is decreasing. The
past year it was 1.4% when it averaged 3% from 2000 to 2005.
Part of this is due to a maturing of the business cycle. “But some
long-term forecasts project that the poor performance will
continue. In Moody’s Economy.com’s outlook, productivity
growth averages 1.4% a year from 2005 to 2035. The main
reason: stunted business investment in new machinery,
technologies and buildings, says chief economist Mark Zandi.”
Zandi offers: “We don’t save much as a nation, and we’ve gotten
away with it so far because overseas investors have been willing
to finance our investment.”
Samuelson: “(But), as global investors shift to other markets, big
federal budget deficits will compete increasingly with private
companies for credit. Higher interest rates will crowd out some
business investment. Productivity will suffer.”
Samuelson’s conclusion? “Although government can’t easily
dictate higher productivity, its policies may perversely favor
lower productivity. What’s politically expedient today – a
dubious tax break, a lazy budget deficit, an expensive regulation
– may be economically corrosive tomorrow. Don’t ditch the
future.”
Much of this is also what Federal Reserve Chairman Ben
Bernanke highlighted in testimony to Congress on Thursday, Jan.
18. After I’ve had a chance to read his statements, I may
continue this discussion next week.
Brian Trumbore
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