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Monday, November 26, 2012

Household Services Expenditures

Here's a graph of spending on discretionary services from Jonathan McCarthy of the NY Fed:

Household Services Expenditures: An Update, by Jonathan McCarthy, Liberty Street: This post updates and extends my July 2011 blog piece  on household discretionary services expenditures. I examine the most recent data to see what they reveal about the depth of decline in expenditures in the last recession and the extent of the recovery, and find that the expenditures appear to be further below the peak identified earlier. I then compare the pace of recovery for discretionary and nondiscretionary services in this expansion with that of previous expansions, finding that the pace in both cases is well below that of previous cycles. In summary, household spending continues to be constrained by a combination of credit conditions and weak income expectations. ...


The author also looks at the pace of the recovery of spending on both discretionary and non-discretionary services, and finds both to be subpar (see the last two graphs). The conclusion:

The pattern of a similarly sluggish pace of recovery for discretionary and nondiscretionary services expenditures suggests that the fundamentals for consumer spending remain soft. In particular, it appears that households—more than three years after the end of the recession—remain wary about their future income growth and employment prospects even though consumer confidence measures have improved in recent months. In addition, households may still see the need to repair their balance sheets from the damage incurred during the recession, especially if they expect that increases in asset prices will be subdued at best and that credit will continue to be constrained. Consequently, a positive resolution of these issues is likely necessary before a stronger services and overall consumer spending recovery can be sustained.
If households had gotten as much help with their balance sheet problems as banks got, the recovery would be a lot further along.

    Posted by on Monday, November 26, 2012 at 11:34 AM in Economics | Permalink  Comments (15)


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