Thursday, February 5, 2009

Personal Consumption as % of GDP


While everyone (including myself) always seems to marvel that personal consumption represents approximately 70% of GDP, I was surprised to learn that for much of our nation’s history this figure has eclipsed 60% (See Federal Reserve Data). Interestingly, the only time personal consumption dropped below 60% was during WWII, when much of the nation’s spending was directed towards national defense (see second chart above). Perhaps even more intriguing is during the worst of the Depression (1932-1933) personal consumption jumped to over 80% of GDP. After combing through the data, it appears that this was more a function of private investment coming to a complete standstill (2.2% in 1932 vs. 16% in 1929) vs. any real strength in consumer spending. Nonetheless, I think it important that when we talk about the consumer being 70% of GDP, this should be framed within the context of our nation’s history (which I suspect most people fail to appreciate).

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