Consumers Gonna Consume

Om nom nom

We now know that Personal Consumption Expenditures (“PCE”) is by far the biggest component of US Gross Domestic Product (“GDP”) and that it was a whopping 68% in 2018!

The next obvious question is, if Americans consumers are always hungry to consume, what are they consuming? Luckily, economists look at these numbers too and can’t fight their nerdy urge to dig deeper and deeper so there is even more analysis possible here. So let’s take a look:

To me, this is one of the most fascinating charts I’ve ever seen (and I have seen A LOT of charts).

Rarely do you see such linear long-term trends in the real world. Things are usually really messy with booms and busts and spikes and dips. Even amongst all those shaded recessions, there is barely any deviation!

And what is changing here is the fundamental nature of the American economy over sixty years. We have long been consumers. But the nature of that consumption has steadily changed toward services and away from physical goods. Americans eat relatively less burgers and do relatively more helpful activities for one another. What we see so simply in this chart is the emergence of a service-based economy.

It’s fascinating to think of all the changes seen in the US since 1960. From the Space Age to the Computer Age to the Mobile Age to the Information Age. Yet, through all these incredible explosions of change, the fundamental nature of GDP, all the “stuff” we produce in a given year, has slowly evolved in such a fashion to look almost boring! All that change. Two boring lines.

Believe it or not, we can go even deeper into goods and services and see what what those GDP components are made up of themselves. I’ll cover that in the next two posts and then move to other, non-consumption GDP components.