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Consumer Spending is *Not* 70% of GDP

Posted by: Michael Mandel on August 14

I opened up this morning’s NYT and see the big headline “Retailers See Slowing Sales in a Key Season.” And I just know that we are about to have another round of “consumer spending is 70% of gross domestic product, so blah blah blah blah of course we can’t recover unless consumers start spending again.” (Not in the NYT story, to their credit, but you can find similar quotes everywhere you look).

Blah blah indeed. As a textbook author, there are few things that frost me more than hearing “consumer spending is 70% of gross domestic product,” because it perpetuates two very large and very misleading untruths.

First, the category of “personal consumption expenditures” includes pretty much all of the $2.5 trillion healthcare spending, including the roughly half which comes via government. When Medicare writes a check for your mom’s knee replacement, that gets counted as consumer spending in the GDP stats.

At a time when we are wrangling over health care reform, it’s misleading to say that “consumer spending is 70% of GDP”, when what we really mean is that “consumer spending plus government health care spending is 70% of GDP.”

Second, an awful lot of those back-to-school dollars are going to imported clothing and school supplies (how many of those laptops and iPods do you think are made in the U.S.?). A dollar of consumer spending does not translate into a dollar of domestic production.

In fact, the whole way that the BEA presents the GDP statistics points the public debate in the wrong direction. GDP stands for “gross domestic product”—that is, domestic production. But the breakdown of GDP is into expenditures categories—personal consumption expenditures, government consumption expenditures, etc. Just take a look at Table 1 of the latest GDP release.

So we have grown used to thinking of “spending” as “production”—after all, that’s the way it is presented. (I’m not blaming the BEA, by the way. This is the way that GDP was designed from the beginning, 70 years ago).

I think we need to move towards presenting GDP in terms of production, rather than spending. We need a shift from the consumer to the producer as our main unit of analysis.

But for now, we need to stop being so darned obsessed with consumer spending.

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Reader Comments


August 15, 2009 09:47 AM

Good article. Could you also discuss why it is difficult to compare GDP's across nations. I am also curious about statements that Germany is an exporter when a great portion of its exports are to other EU countries. Sort of like saying California is a great exporter because it sells to other parts of the United States.


August 15, 2009 10:37 AM

Is part of the deal that consumer spending is easier to measure? Was trade a smaller portion of the economy when the measure was crafted?


August 15, 2009 11:02 AM

In the long run, consumer spending is a more reliable indicator of economic health than production, because spending, not production touches virtually every household.
If Caterpillar produces 500 more motor graders this year, it doesn't mean much on Main Street outside Peoria, Illinois.
But if people in general start buying cars or houses, it has a substantial impact across the board.
Consumer spending translates into sales, which, of course, translate into shipping, warehouse space, retail space, accounting, etc.,all of which boosts the economy, regardless of whether the product involved is imported or domestically manufactured.
It is therefore more useful to the average person to focus on spending in general rather than on individual industries.
Domestic spending tends to rise and fall in a general pattern as it is retail based, whereas production rises and falls in specific industries and depends more on international markets and the global economy.
A far better indicator of the economy is how many trips to the mall and log ons to retail websites are made in any given time frame.
Because like it or not, if the American public isn't spending money, nothing is going to happen.


August 15, 2009 11:15 AM

So, if someone else covers my expenditures (due to insurance or some other means) it shouldn't be counted under consumer spending? Is that what you're saying? Why not? If the insurance company doesn't pay the bill then I have to, so it's still a consumer expenditure.

I believe the historical average of the consumer driven portion of our economy is 66% and each percentage point after that contributed plenty to our present economic woes.

How should we account for items not produced within the U.S. but that still contribute revenues to Americans or American companies? Just because the item was made in some offshore situation doesn't mean it does not contribute to our economy.


August 15, 2009 12:24 PM

That is a good point that spending money does not equate to production of any sort. Our fearless political leaders perpetuate the myth that the spending government does will create economic benefits, which rarely happens. (The space race being THE spectacular exception.)

On the contrary, government money belongs to the people, so in a way, government spending is consumer spending. The government's monumental spending, and involvement with many areas it should not be involved with whatsoever (like healthcare)contributes to complicating the tracking of the citizens' money flow and accounting for wasteful spending.

Brandon W

August 15, 2009 01:07 PM

You may have a point, but I'm also tired of GDP being used as a proxy for Quality of Life. It is not. If we all work 70 hours per week producing things we will see a huge increase in GDP, but a drastic reduction in QOL (except, perhaps, for those that own the means of production who will simply get very wealthy and be able to escape the 70 hour work weeks). If we produce piles of pollution-creating products, we will see an increase in GDP but a drop in QOL. Up to a certain point, increases in GDP might equal a better QOL, but after that point increases will only equal a reduction in QOL. One problem with our current "capitalist" system is that it is based on debt. Taking on more debt for the sake of growing production might increase GDP but debt decreases QOL. Life is much better when you don't owe money to anyone. Far less stress, less need to generate constant income to service debt. Debt is a prison. But our current version of "capitalism" demands it, to the detriment of our QOL.

So let's remember every time we hear about growing GDP that it may not be increasing QOL, it may very well be decreasing it.


August 15, 2009 02:38 PM

So with government covering 46% of the 17% spent on healthcare it would be more like 62%. There is a difference between insurance that we choose for ourselves individually and that provided by government whether we consider it worthwhile or not, it is just that any healthcare is rarely chosen individually since it is generally an employee benefit and its cost is determined socially rather than by choice, so maybe healthcare should be removed from consumer spending entirely which would make it 53%. There is hardly anything discretionary about it.

Mr Pepper

August 15, 2009 02:55 PM

Clearly, GDP, QOL, and many other acronyms are part of what is a fast changing and complicated world that no one is really able to understand. The level of complexity is such that I think we need to take a pause, and step back and try to figure out where we are, how we got here, and where we want to go. As things presently stand, every one is follwoing everyone else, and no one is leading. This is a recipe for confusion as best, and dissary, worse.


August 15, 2009 06:40 PM

Good reminder on GDP construction, just be prepared for a lot of deaf ears at all levels. I thought you were going to point out that consumption has been artificially high over the past decade which also pumps up the 70 percent number. maybe next time


August 15, 2009 09:14 PM

Brandon W you make some good points.In addition we should all remember that it is in the governments interest to continue the merry go round of ever increasing debt,which will necessitate people working harder and longer to service that debt,as the government is first in line to collect taxes on that higher income.With the exception of mortgage interest,most of the debt created is not deductible.


August 16, 2009 03:17 AM

After writing a Mickey Mouse economic pamphlet for idiots Mandel is milking his accomplishment for maximum mileage, including using it as a foundation to support his assertion that consumer spending as 70%GDP is misleading or wrong. As other Blogers have noted, Mandel is splitting hair. Instead of trying to sound erudite, Mandel should address the fact that excessive consumer debt and spending only make the current recession worse. Leading economists like Marc Faber and Peter Schiff tackle head-on the economic problems caused by American consumers borrowing excessive amount of foreign money and spending it beyond their means. Mean while, Mandel is busy crossing T's and dotting I's over the percentage of GDP when everyone knows the American consumer has cut-back spending because over 15% of the American consumer is either broke or unemployed or in foreclosure or all of the above. Just as nutty Nero wrote poetry while fire ravages Rome, Mandel writes nonsense as the recession devastates America. Mandel is such a phony and tragic comical economist that even if BW readers take him seriously he would still be relegated to the company of Goofy and Daffy Duck.


August 16, 2009 08:25 AM

@Bill - You are joking, right? You are comparing Germany's relationship to Europe to that of California and the U.S.? Europe is not a country, buddy. The U.S. is. On the other hand, Germany is a country and California is not... although a lot of people like to say that California would be (and the key here are the two words "WOULD BE") the nth largest economy of the world if only it was a country.


August 16, 2009 08:58 AM

Where are your manners? This is not a flame site.
You did not attack any of the facts that were in my post. If you have some facts to contribute, please do.


August 16, 2009 10:09 AM

Here are some facts regarding German exports you may wish to consider in the issue of whether how we treat or characterize "exports" is worthy of further analysis. (By the way, I am the former Chair of the international business development committee of a medical device trade association.) Within the EU, members trade using a single currency (as in the US), and developing standards, such as the CE mark and the adoption common product standards incorporated into regulations promote trade between member states (as in the US where US constitutional commerce clause interpretation prevent states from blocking intrastate trade). With a common currency and common regualatory standards, intra-EU trade has grown tremendously. If you are a non-EU country exporting to the EU, you will find that it is qualitatively more difficult to export to the EU than it is for an EU country to export to another EU country. A large portion of German trade is to other EU countries--France just across the border. Germany's largest non-EU trading partners are Russia and China. Economic geographers look at trade patterns and look at the existence or non-existence of barriers and common currency when discussing export patterns and country specialization. All I am saying is that, just as we should look at the 70% consumption figure a bit sceptically, we should look at export classifications a bit sceptically when the exports involve trade within a no tarrif block which also has a common non-tarrif regulatory overlay designed to promote intra community trade.


August 16, 2009 11:09 AM

Guys, GDP and the bits that make it up is just an accounting convention, and the very name and the name of its bits are suggestive but by no means descriptive.

In GDP, "consumption", "savings" and "investment" are just accounting categories that only vaguely resemble what people understand with the ordinary meaning of the same words. They are abstract technical terms, even more so than the technical terms of business accounting.

Perhaps national accounting could be restructured so that the bits of GDP corresponded better to the intuitive notions their names evoke, but that would cause a lot of trouble.

Also the very fact that GDP and its bits are misleading is welcome to many, just like the ever-changing definition of "unemployment". For example GNP used to be the figure people looked at, but GDP is now used because it looks better.

Great Spender

August 16, 2009 11:17 AM

isn't spending fun?
but these figure here are kinda scary


August 16, 2009 01:08 PM

GDP as it stands in the conventional form does not really convey the real domestic production when it accounts for personal consumption. What i would like to know is the exact US domestic production.With the gradual decline in manufacturing, it would be interesting to know what is that are the things we actually produce.


August 16, 2009 05:34 PM

Production is the way to help GDP, consumer spending suing credit cards ae adding to US debts to foreign countries. Spend what you have.


August 16, 2009 06:06 PM

I agree with some ideas however:ipods and laptops are produced abroad, the cost of production is just a fraction of the final cost to the consumer. What about supply chain costs, marketing costs, etc. which are local by nature?. Big corporations pocket in handsome profits which remain here to the payroll. Do not forget taxes paid for the purchase of the laptop (domestic or foreign made)!!!!


August 16, 2009 08:08 PM

Sounds like a call to return to supply side economics, which has already failed once. In fact, we need to think about both production and consumption. There's no point producing goods for people who can't purchase them. Why does our system have to be run to satisfy the whims of a greedy few?


August 16, 2009 08:33 PM

Consumption drives production.


August 16, 2009 08:54 PM

Don't you subtract imports (and add exports) from the GDP ?

There is the effect that the GDP looks better just because imports cratered more than exports, which is hardly a sign of great economic conditions.

What seems to make sense to me is to look at changes in GDP over time and consumer spending as part of GDP was around 65% 20 ago if I remember correctly.

But what was that you do? Write textbooks...?!

Joe Cushing

August 16, 2009 09:15 PM

Great post.

I do want to point out one thing though. Ipods are "made in China" yet the vast majority of what you pay for an Ipod stays in the U.S. The assembly process that causes the product to be denoted "made in _____" is the cheapest part of making an Ipod. There is a lot more that goes in to "making" an Ipod than assembling it.


August 16, 2009 09:51 PM

I think Robert is right.


August 16, 2009 09:52 PM

interesting. wasn't the writer one who advocated counting production from overseas as part of GDP. or similar proposals?

Mike Mandel

August 17, 2009 11:59 AM

>interesting. wasn't the writer one who advocated counting production from overseas as part of GDP. or similar proposals?

No. I argued that GDP, as calculated today, mistakenly counts foreign-made goods as part of domestic production.


August 17, 2009 12:44 PM

Feel free to lead the charge. I've spend a good deal of time working with GDP data and input/output tables and it is not that difficult. As you remember from Econ 101, there are three ways to measure GDP: final goods, value added and income. While expenditure is one way to break down GDP, the BEA also provides final goods and value added data.

As someone who has spent a bit of time getting comfortable with the data, I suggest you do the same and tell us how we can respresent data better. I don't think foreign goods are "mistakenly" counted as domestic assumptions. The presentations of the data don't always mention that total expenditure=domestic income + net exports. Regardless, measures like PCE are useful for understanding consumption behavior as normally understood by economists. I can see how it could confuse non-economists, so perhaps you should come up with a better classification.


August 17, 2009 12:44 PM

Feel free to lead the charge. I've spend a good deal of time working with GDP data and input/output tables and it is not that difficult. As you remember from Econ 101, there are three ways to measure GDP: final goods, value added and income. While expenditure is one way to break down GDP, the BEA also provides final goods and value added data.

As someone who has spent a bit of time getting comfortable with the data, I suggest you do the same and tell us how we can respresent data better. I don't think foreign goods are "mistakenly" counted as domestic assumptions. The presentations of the data don't always mention that total expenditure=domestic income + net exports. Regardless, measures like PCE are useful for understanding consumption behavior as normally understood by economists. I can see how it could confuse non-economists, so perhaps you should come up with a better classification.


August 18, 2009 02:03 AM


Even other BusinessWeek columnists say that consumer spending is 70% of the economy :

You have to take a few of them to the woodshed.


August 18, 2009 05:25 AM

I think it's a mistake to always use the classic spending side (Y=C+ etc) of the economy when you discuss economics. It makes you focus on spending instead of production. It also empahsizes the aggregates more than the individual level.

That's why I think it would make sense if more economists and politicians combined Keynesian analysis with Austrian school thinking rather than trying to argue that the other side are idiots. The Austrian school focuses more on the production side and are generally much more interested in what logically will happen in the real world.

I think both sides can contribute in the discussion of today's problems.


August 18, 2009 04:35 PM

For your next GDP dissection it would be illuminating to examine why the methodology used with tech sectors produces frequent double digit gains in that part of GDP.

Mike Mandel

August 20, 2009 05:49 AM

That idea is so ingrained into the discussion, I can't even stop it here.

John E

August 22, 2009 01:26 AM

GDP is simply a measure of what's being made in the doesn't accurately reflect what economic conditions are for the inhabitants of a country. Consumer spending has been the engine of the economy, especially after recessions, regardless of how you define consumer spending. And the "experts" say consumer spending will be sluggish for years to come, therefore the recovery will be sluggish. The true measure of economic recovery should be standard of living statistics, are those improving?

Tim Miltz

August 26, 2009 03:30 PM

Right, I agree

Consumer spending is NOT 70%.

It's 80%.

Tim Miltz

August 26, 2009 03:52 PM

The quote David Castillo:

"When you look at what drives recovery or drives economic progress in any country, especially in the United States, it's a function of the consumer actually buying goods, or services. At this point in time, the US consumer continues to be impaired, and continues to have a very poor looking balance sheet. We don't have liquidity i.e. credit available to the US consumer".

I had to type that in while listening to it by the way !

But I agree with David 100%.

Mr. Castillo is one of the United States leading experts in Trading, Distribution and Analysis in the markets for Asset Backed Securities, Commercial Mortgage Backed Securities and Structured Products.

To the author: Michael Mandel, I get a sense here you are decoupling production from sales. If there is no consumer, production is no more than an ideal. I distill from above that you promote production somehow outweighs the necessity for the consumer. Sure, no product, nothing to be consumed, however, the two are tightly bound in a codependency such that we can't say it's consumer OR production oriented. To that, I'll say - I think what you mean to say in this article is that it's really BOTH production AND consumption that drive the economy. If that is the case, I 'get' your point, and agree. 1/2 way through typing this out I think I've benefited from your POV here, sounds like you're saying 'hey, let's just not leave out the production side'.

But atoms come from exploding stars, and no nation state can geocode atoms that make up the material goods produced, so it's silly to approach the nation state model as if somehow - atoms found in on place of the earth are more worthy than another for production OR sales/consumption.

I've no problem this keyboard and most of the items in my house are from China, clearly China offered the better deal. Global free market capitalism, I love it.

Besides, post Hiroshima ? I can't see how nationalism has anything to offer humanity any more - my god - threat of nuclear weapons to defend the land we took by force from the original natives here who merely considered themselves caretakers of the land they respected ?

To that- kiss the 'Made in America' OR 'Made in China' campaign goodbye.

Not worth use of nuclear weapons to divide ourselves for an out of date model that replaced feudalism.

I welcome globalism with open arms - and a strong mind.

Now, heh, Alan Greenspan speculates the global economy is so complex, that no one person CAN understand it. I do like challenges though.

Tim Miltz

August 26, 2009 04:14 PM

Perhaps only in a fragmented post WW II Bretton Woods II model we still expect to evaluate a global economy through the eyes of Wilsonian isolationism.

I agree with Alan Greenspan: Protection is dead.

I have made an argument recently that if Merrill Lynch was so big to fall that IF it did ? It would have tanked the entire US economy ? I USED to say, okay, then why would Bernanke and Paulson nearly force a merger with Bank of America, making BoA even bigger. Chime in John Thain's comments last October that when the merger (I do believe he sided on when, not if, hmm.. John ? You seemed to know something before the stock holders even !, I'll leave that one alone, it detracts from my point), but Thain said Bank of America after the merger will be the most powerful commercial bank, residential bank, mortgage bank, and broker in the world. Note he said 'World'.

Now I no longer say that was a bad thing.

Bank of America truly IS so big that it trumps the nation state model for economy.

Lately I see Bernanke has helping take the training wheels off of the nation state model ushering in a healthier- frankly - more realistic global model.

So, globalism seen through yesterdays eyes (remember, nationalism replaced feudalism, and nationalism was really a temporary model, ESPECIALLY after Hiroshima, it simply can offer no more benefit to humanity long term, of course, that's only based on our track record as Arthur Koestler points out that we WILL use them, just a matter of time, religious wars, civil wars, wars to end wars, revolutionary wars, onward, er, backwards let's hope)) presents us with these intellectual deficits trying to figure out how it is US consumers indeed consume more from China, than the US. India has taken front seat on so many service oriented sectors, China clearly has taken front seat on manufacturing. It's hard to even have dialog on the subject using WW II fragmented/Bretton II models.

Hey, so long as it's de-leaded, I'll take products from China, sure.

Forget the East/West wall coming down in Germany/Eastern bloc countries, when the Great Wall of China comes down, we perhaps can start to say, gee, from space ? it really is one planet, and of course from the mind of Alan Greenspan, it is no longer a nation state driven economy, it's a global economy.

I say - start swimming in the currents of globalism or drown in yesterdays chains.

All the financial giants have embraced globalism. If one chooses to hold onto the parent/provider model of nationalism ? then sure, it looks pretty bad that US citizens tax money from services rendered/jobs were used to restore to pristine state the global financial corporations. Seen from a more realistic perspective, it's a good move.

I lately present that it's the World wide web, and just think how absurd a 'Nation state web' would be.

Now, ask yourself, how absurd is a nation state model of economy in today's world.

Both are equally invalid, and absurd.

I celebrate global trade, I can order anything from anywhere in the world and it shows up on my doorstep.

I celebrate global media share, for I can write this very sentence and it's read anywhere in the world.

I celebrate a global economy, for whether we like it or not, the training wheels came off when Bank of America became so big to fall ? it would render even the military model of the nation state, useless. And didn't we just get a taste of corporate military with Blackwater ? DoD could have hired an outfit out of Spain for all it matters, it doesn't.

We're global - I say - start thinking in these terms - or enjoy telling the kids about the threat of nuclear weapons to defend territories statically perceived on moving tectonic plates with plenty of fault lines, which ? after all ? we TOOK from the people here before us, last I checked, they were unarmed.

Tim Miltz

August 26, 2009 04:40 PM

I joke above that GDP is 80% consumer driven only because - as I heard someone put it recently 'The says of inconspicuous spending are over'.

In some ways, the US citizens have simply followed in step with the nation state model, spend spend spend and spend some more - Wall Street reached I'd say nearly 40 to 1 over leveraging. Just insane.

According to what happened with Wall Street on Global Derivatives? with 40 to 1 leveraging ? My oh my - Suzy Orman says you need 40x your income to retire, so at say - $50k ? that's 2 million. Now, according to our RECENT era of inconspicuous spending off the spicket of over leveraging ? My oh my - that would mean someone making $50,000 could have bought a $2 million home. Indeed, that is what people have done.

The nation state has over leveraged, and China I've observed watching Long term US treasuries closely ? This JANUARY started a War on US Treasuries, and opted to 'Just Say No' to long term US treasuries. And people to date STILL have NO clue on why March 9th hit, tsk tsk tsk- The tank ran empty is what happened.

The US consumer has followed model of the nation state and over leveraged, juggling credit cards.

The US corporations - at least the investment banks ALSO followed this model, and hey - can you blame the kids on Lord of the Flies island ? There was no adult regulation.

They just took what they could get away with- responsible or not.

How's that song go ? "Believe it or not ? I'm riding on air" ? Bout sums up US economic policy until we got slammed with a wake up call.

There is nothing wrong with investing in, and leveraging against human efforts and labors. Moderation ! Not greed.

I think people are starting to realize - although the sun shines for free ? since big energy has ignored this wonderful truth ? no one is 'owed' a 40 inch flat screen TV, and a trip to Disneyland, nor is anyone 'owed' in a Somerset Maugham esque way - ANYTHING.

I wonder what Egyptian economic models were like- you just KNOW they's go solar had they made it to modelling the electron.

In the meantime- I'll throw out a new term to chew on.

Global consumerism.

Perhaps G-8 will lay out a single model currency sooner than later and we can all start celebrating humanity through one single currency model.

Can have two people of varying religious fundamentalist ideologies (or lacking there within), BOTH staring at $100 million in US bills, or gold, BOTH will agree on one thing I argue. So- currency binds us - OR separates us more than religion does.

G-8 needs to become G-1

We need ALL the humans we want to honor and celebrate on the new bills, NOT just those that happened to think inside the geo-spatially cornering boundaries of the temporary model of the nation state.

Just like Williamsburg VA, I say nation states will become pure tourism - which is fine with me. "mommmy, I want to visit theme park France this year" "Sorry Jenny, we're going to Theme park Germany this year". ? ? ? Bout the way I see things coming - and I welcome it.

Tim Miltz

August 26, 2009 04:52 PM

I never noticed it until reading over what I just wrote... Seeing the word 'Territories' ? I at first glimpse thought - did I say 'Terrorist' ?

I do say- I think they share the same root etymologically.

This just fuels my argument that terrorism is really just the final response as a shadow TO nationalism- or territorialism. And indeed, wasn't that the justification that the US didn't violate the Geneva convention ? that these human beings not charged with any formal crime at the time were abused because they didn't belong to any nation state ? and therefore ? didn't get Geneva Convention protection ?


After seeing Harrison Ford in Mosquito Coast (long time ago), but when he had 'terrorists' invading his home ? he was smart. He said - here, no more home - BYE NOW, BE GONE. Ok sure he froze them solid too - but remove the nation state model ? and no more target

I've promoted this to reveal a way out of nuclear weapons stressors on peoples psyches which CAN'T be right or healthy- US has lost decades living in gloom and doom on that.

BUT perhaps there is something here to examine that territory and terrorist MAY share the same root.

Does one ? beget the other ?

I argue yes.

Now, under globalism, territorialism, as with protectionism (hey, no territories ? nothing TO protect) ? terrorism just disappears like the shadow it was.

To that - I stand with Secretary of State Paul O'Neil who shares that when Bush took office - he saw a closed document entitled "corporate candidates for Iraq oil fields" - AND Paul ALSO says that bush went around from day one going "Find me a way into Iraq".

We ALL know that's the truth too- I do at least. Paul O'Neil was also the first person Bush administration fired.

Gee- wonder why ?

Maybe he saw right through them.

I think 20 years from now we'll have the REAL intelligence to look back and see Iraq for what it was, why ? it's what Michell Malkin feels was the right thing to do ? no, we'll see it was a CHEAP outsourcing the military of a nation state on it's last breath, and really, it's on it's last legs anyway - why not use the military for corporate instrument ? UGH!

Tough last 8 years to tolerate.

Global banks - fine with me.

Global energy ? Gee, we find out Ken Lay - the #2 user of the Bush campaign jet in 2000 (TXU who MAKES the electricity from coal was #1 user, Enron just sold it for them) ? Ken ONLY wanted to control the power grid GLOBALLY, gee, only at the expense of our health, and our future health, from mercury to 118 in Houston in 2013 thanks to all the co2.

For anyone who questions co2 anymore - Japan's JAXA IBUKI satellite DID make it up - and the data JUST came in - oh yeah, Coal is behind the co2 - and oh yeah, global warming is REAL as to co2 being a causal factor.

I'd like to see big energy spin that with a prop corporate TV station.

two things

August 27, 2009 02:47 PM

Two things. 1) Many global U.S companies do huge business in foreign countries like China and other countries that U.S consumers buy from. If U.S consumption of goods from those countries go down, it's possible our U.S companies also get hurt too. 2) Say personal spending does go down in the U.S. I think that means less imports are bought. Dollar drops. U.S exports go up. So exports take a higher percentage of our GDP. The U.S successfully switched from a manufacturing centered country to a service oriented country in about 20 years. We survived.


August 30, 2009 01:06 PM

Anyone is free to adjust a published national accounts concept to make an argument so long as accounting identities are preserved. When you subtract from personal consumption expenditures, the amount must be either added to another sector or subtracted from the whole. This is violated by your treatment of imputed services which you remove from PCE but do not remove from GDP.

Your other adjustments can be accounted for though you don’t specify what you would do. Expenditures by nonprofit institutions serving households could be moved to a new sector made for the purpose. Instead of subtracting all imports in the foreign transactions account, import purchases could by identified and allocated to (subtracted from) the other sectors. This would more directly answer the question “Who receives U.S production?”

I don’t agree that there is a substantive difference between government transfer payments in the form of Social Security and in the form or Medicare. The Medicare payment may not pass through the hands of households but the production is received by households.


October 16, 2009 09:23 AM

There weren't an "awful lot of back-to-school dollars" being spent this time around. In fact, sales were awful and a harbinger for the holiday shopping season. That other half of the $2.5 trillion probably comes from a couple of emergency room visits by the uninsured.

Alan Reynolds

April 20, 2010 06:40 AM

Mike says, "We need a shift from the consumer to the producer as our main unit of analysis." Amen!

That's essentially what I had in mind when I persuaded the Wall Street Journal (Jude Wanniski) to embrace the phrase "supply-side economics" in 1976.

If you look at sources of GDP rather than uses of GDP, you'll find that business accounts for about 85% of domestic production.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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