Skill Level Appropriate for all
- Have you ever heard people complain that we are a consumer society? Well, it's true, but if we weren't consumers, our economic growth would be pretty miserable. You see, about 70% of all U.S. economic growth comes from the consumption of goods and services. In fact, consumption is the most important part of U.S. GDP. If we were ever to stop being consumers, it would be an absolute catastrophe for our economic growth.
Consumption is broken down into categories for different kinds of goods and services in the U.S. GDP report. This overarching category of growth is technically written in the report as personal consumption expenditures and the two main categories for this, logically enough, are goods and services. For goods, there are two main types that are important: durable goods and non-durable goods. Durable goods are items that should ideally last for three years or more and they're not consumed when you use them.
Think about a car, washing machine, or a refrigerator. Those are all durable goods. Non-durable goods don't last very long and they're usually consumed with use, like food, gasoline, and clothes. Of course, I do have some clothes that are more than three years old, but my wife won't let me wear them out in public. Goods make up just a little more than 1/3 of total personal consumption expenditures, but services make up 2/3 of it.
Services includes healthcare, recreation, food services, financial services, and a number of other services. This is the work done by doctors, lawyers, massage therapists, economists, and manicurists. Whether you're getting a pedicure or you've hired my firm to analyze your business, those are both services. I'm just happy I don't work with feet. Because consumptions is the majority of the U.S. economy, the biggest risk to economic growth is if there's a major shock to consumers, like in the great recession from 2007 to 2009.
Because consumer spending is so important, when it pulls back hard, you can get big drops in real GDP growth. So, how does economic consumption look today? If consumption is good, if people have jobs, and confidence is high, GDP is likely to be positive. But a weakening labor market or a weaker consumer confidence could weigh on this majority component of GDP and it could be bad news for economic growth.