CONSUMERS SHIFT AWAY FROM NECESSITY-DRIVEN SPENDING

Consumer spending has kept the American economy afloat throughout the twentieth century, but the way consumers spend their money has changed significantly over the past 70 years. Consumer-durable spending as a percentage of personal consumption expenditures has hovered in the range of 10 to 13 percent since 1929, with a slight peak in 1950 at 16 percent, but the share of consumer spending on nondurable goods and services has varied significantly. Nondurable spending includes such essential categories as food and clothing along with discretionary categories of gasoline, fuel oil, tobacco, toiletries, semidurable home furnishings, cleaning supplies, drugs and sundries, toys, stationery, magazines, newspapers, flowers, seeds, and potted plants. Nondurable spending accounted for as much as 51 percent of personal consumption expenditures in 1950 to as little as 30 percent in 2000. One reason for the significant decline is that essentials (for example food and clothing) now cost less relative to total income. In the later decades of the twentieth century, essentials have captured far less of the consumers' budget. In 1930, food alone comprised nearly 26 percent of personal consumption expenditures, and clothes took another 11 percent. Compare that 37 percent budgeted to essentials in 1930 with consumer spending in 2000 on the same necessities, where food (14 percent) and clothing (5 percent) together accounted for only 19 percent of total expenditures. Today, after consumers budget for essentials, they have a substantial amount of money left to spend on discretionary items, as shown in Figure 1.2.

	1930	1940	1950	1960	1970	1980	1990	2000
Durables	10.3	11.0	15.9	13.0	13.1	12.2	12.2	12.2
Motor vehicles	3.1	3.9	7.1	5.9	5.5	4.9	5.4	5.2
Other	1.6	1.5	1.7	1.7	2.1	2.3	2.3	2.5
Furniture	5.4	5.3	7.1	5.4	5.5	4.9	4.5	4.6
Discretionary	4.7	5.4	8.8	7.6	7.6	7.2	7.7	7.7
Nondurables	48.4	6.0	51.0	46.0	41.9	39.5	32.5	29.6
Food	25.6	28.4	28.0	24.8	22.2	20.2	16.6	14.2
Clothing and shoes	11.4	10.5	10.2	8.1	7.4	6.1	5.3	4.7
Gas and oil	4.7	5.3	4.6	4.8	4.1	5.8	3.1	2.7
Other	6.7	7.9	8.2	8.3	8.3	7.4	7.4	7.9
Discretionary	11.4	13.2	12.8	13.1	12.4	13.2	10.5	10.6
Services	41.3	37.1	33.1	41.0	45.0	48.4	55.3	56.2
Housing	16.0	13.6	11.3	14.5	14.5	14.5	15.3	14.3
House operations	5.6	5.6	4.9	6.1	5.8	6.5	5.9	5.7
Transportation	3.1	2.9	3.2	3.4	3.7	3.7	3.7	4.1
Medical care	3.3	3.2	3.7	5.3	7.8	10.3	14.1	14.8
Recreation	2.4	2.4	2.0	2.1	2.3	2.4	3.2	3.8
Other	11.0	9.1	7.9	9.6	10.9	11.0	13.1	15.6
Discretionary	16.5	14.4	13.1	15.1	15.9	17.1	20.0	23.5
Total Discretionary	32.6	33.0	34.7	35.8	36.9	37.5	38.2	41.8
Source: Bureau of Economic Analysis, NIPA tables

Figure 1.2: Spending on Discretionary Items as a Percentage of All Personal Consumption Expenditures (PCE)

In the later decades of the twentieth century, essentials have captured far less of the consumers' budget.

In the current economy, the services category has captured share from other categories, especially consumer nondurable spending. Services include essentials such as housing, as well as discretionary expenses, such as recreation, education, transportation, and many household operations. Various personal services such as legal, payments to financial institutions, donations to religious and welfare groups, and foreign travel are also included in the discretionary spending for services. In 1940, services made up only one-third of consumer spending, while in 2000 services rose to a startling 59 percent, an increase of 26 percentage points.

Another category of spending that most contemporary Americans would call an essential expenditure is medical care. In 2000, medical care accounted for more consumer spending, 14.8 percent, than did housing, with a 14.3 percent share. Of all spending categories, medical care has increased the most since 1930, when it represented only 3.3 percent of personal consumption expenditures.