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Real retail spending v. Personal consumption

Bob Moon Nov 30, 2010

Real retail spending v. Personal consumption

Bob Moon Nov 30, 2010


Kai Ryssdal: A lot of retailers have been downright giddy the past couple of days. The National Retail Federation reported a $4 billion spike in consumer spending this Thanksgiving weekend over last. Online sales for what has unfortunately become known as Cyber Monday were up as much as 19 percent. Which has in turn led to increased use of this old saw: Consumer spending accounts for almost three-quarters of the U.S. economy, so that jump in buying must mean good things. Perhaps that’s true. But what if the old saw isn’t really what it seems?

We asked our senior business correspondent Bob Moon to answer this question: Is consumer spending really all that?

Bob Moon:It might be easy to think of economic recovery in terms of re-filling an empty glass:

Sound of long pour

Just add the 70 percent of the economy so widely attributed to consumer spending, and we could have it topped off in no time.

Pouring stops

It’s not nearly so simple. All the American goods we consume would actually measure up to something more like this:

Sound of small pour

There’s a difference between real retail spending, and what the government classifies as “personal consumption.” That grab bag includes health care — even Medicare spending by the government — and the rent you pay, even if don’t.

David Wyss is chief economist at Standard & Poor’s.

David Wyss: Basically, the government pretends that if you own a house, you’re a businessman renting it to yourself. So you charge yourself a rent, which counts as consumer spending. Of course, I never paid myself any rent.

And this is where it gets complicated, so don’t get lost: Factor out all those things, and retail spending adds up to a lot less of the country’s overall economic activity.

Wyss: We’re really looking not at 70 percent of the economy, but sort of 40 percent of 70 percent, or about 28 percent.

Spoken like a true economist, all right. On the other hand — and economists always seem to have another hand — you need to whittle the number down even further if you count only made-in-America production.

Wyss: Probably about 30 percent of those retail sales are goods that are produced outside the United States.

At Visible Economy LLC, editor in chief Michael Mandel says that’s why all the patriotic talk about spending our way to a recovery doesn’t add up.

Michael Mandel: A big chunk of consumer spending is on things that are produced overseas, and that really don’t drive U.S. production, that don’t create U.S. jobs.

Mandel argues that holiday spending is largely for things that will worsen the trade deficit, add to our debt overseas and create bigger problems in the future.

Happy holidays.

I’m Bob Moon for Marketplace.

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