David Leonhardt has an interesting piece in Sunday's New York Times pointing out the much-larger-than-usual decline in consumer spending in this relative to past downturns.
In an economy that's 70% consumption, that's an important reason why we're stuck in neutral. But Leonhardt intimates that this decline in consumption is structural not cyclical ("The old consumer economy is gone, and it's not coming back.")
I'm not so sure. Seems to me that for the structural call to be true you'd want to see at least the beginning of a change in the consumption share of GDP, and that hasn't happened.
The figure shows, in fact, that consumption as a share of GDP was 71.1% most recently, tied for the highest share on record, with data going back to the 1930s. Doesn't mean the NYT is wrong -- but it's probably too soon to assert a structural shift.
What gives? How could the large declines Leonhardt finds comport with the elevated share? It must be that the fall in consumer spending is proportionate to the decline in GDP.
If you want to see a structural change by my definition -- one significantly and lastingly altered as a share of the economy -- look at investment resident housing. That's averaged about 5% forever, but as you can see, it did a total cliff-dive with the bursting of the housing bubble. My guess is it will be a while before that share climbs back to historical levels.
Two more observations about this. One, the second figure shows that the housing bust is largely behind us in that this share, bound by zero, can't fall much further. That doesn't mean we get the boost we need from a normal housing market coming out of slump, where low interest rates trigger new buying. It does mean we get less of a drag from the sector.
Second, regardless of GDP shares, Leonhardt's punchline is exactly right -- consumer spending is way down and it's not getting much of a boost from jobs and paychecks. Which means that fiscal stimulus is about the only game in town, or it would be if policy makers weren't spending practically every waking minute on budget cuts.
This post originally appeared at Jared Bernstein's On The Economy blog.
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