100 Years of Consumer Spending
Brian Trumbore
President/Editor, StocksandNews.com

The other day economist Robert Samuelson had an op-ed in The Washington Post concerning a report by the Bureau of Labor Statistics titled "100 Years of U.S. Consumer Spending." So since this seemed like a potential topic for this space I decided to check it out myself at bls.gov.

There's a lot of data to sift through so I winnowed it down to some basics while looking at three periods in time?1901, 1950, and 2002-03.

1901?population of United States 76 million

Avg. household income - $750
Avg. household expenditures - $769

Expenditures?$327 food (42.5%); $179 housing (23.3); $108 clothing (14.0)

Hourly wages/mfg - $0.23?finance, insurance, real estate - $0.50

Flour (5lb.) $0.13; round steak (lb.) $0.14; eggs (dozen) $0.22; butter (lb.) $0.27

1950?population 150 million

Avg. household income - $4,237
Avg. household expenditures - $3,808

Expenditures?$1,130 food (29.7); $1,035 housing (27.2); $437 clothing (11.5)?$510 transportation (13.4), 59% now own cars nationwide

Hourly wages/mfg - $1.59?finance, insurance, real estate - $1.55

Flour $0.49; steak $0.94; eggs $0.60; butter $0.73

2002-03?population 281 million

Avg. household income - $50,302
Avg. household expenditures - $40,748

Expenditures?$5,357 food (13.1); $13,359 housing (32.8); $1,694 clothing (4.2)?$7,770 transportation (19.1); $2,384 healthcare (5.9)

Hourly wages/mfg - $15.30?finance, insurance, real estate - $16.35

Flour $1.56; steak $3.84; eggs $1.24; butter $2.81 [I didn't use milk as a category because the data wasn't available for 2002-03]

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So what can you conclude by looking at the above?

For starters, the percentage spent on the bare necessities, food, housing and clothing, has decreased from 79.8% of overall expenditures to 50.1% over the past 100 years. But of course transportation is now a big cost compared to 1901, and we are spending large sums on things we take for granted these days, such as TVs, travel, telephones and the Internet. As always, though, it's about priorities. As the BLS study notes, "High- income families spend more in absolute terms than do low- income families, but they also spend a lower share of their income for food and other necessities. By assessing the proportion of spending that households allocate for specific items, it is possible to judge both national and regional income distributions, as well as a society's overall development level."

In his op-ed piece, Robert Samuelson focuses on productivity.

"This triumph of mass consumption (since 1901) is usually credited to technological breakthroughs, from the assembly line to computer chips. But the whole process is also described as productivity improvement. In 1900, 41% of Americans worked on farms. If mechanization, new seeds and fertilizers hadn't meant that fewer people could produce more food, we'd still be paying two-fifths of our income to eat. Labor productivity is measured as output per hour worked. Whatever enables people to produce more in a given time (machinery, skills, organization) boosts productivity.

"That in turn raises our incomes - or gives us more leisure. It also promotes domestic tranquility by muffling the competition between government and personal spending. Slow productivity growth virtually ensures a collision between the heavy costs of retiring baby boomers - mostly for Social Security and Medicare - and younger workers' living standards. Higher taxes will bite deeply into sluggish incomes. The reason: What seem to be tiny productivity shifts have huge consequences."

For example, Samuelson notes that in 2005 the U.S. economy produced $12.5 trillion in goods and services, or GDP. If productivity growth averages 2.5% a year, the economy reaches $34 trillion in 2035 (in constant 2005 dollars), per Moody's Economy.com. But if productivity averages only 1% annually, the GDP in 2035 would be just $23 trillion. This would be a huge problem for younger workers forced to meet the baby boomers' retirement costs. [The last in that category would only be 71 years of age by 2035.]

Samuelson worries that productivity growth is decreasing. The past year it was 1.4% when it averaged 3% from 2000 to 2005. Part of this is due to a maturing of the business cycle. "But some long-term forecasts project that the poor performance will continue. In Moody's Economy.com's outlook, productivity growth averages 1.4% a year from 2005 to 2035. The main reason: stunted business investment in new machinery, technologies and buildings, says chief economist Mark Zandi."

Zandi offers: "We don't save much as a nation, and we've gotten away with it so far because overseas investors have been willing to finance our investment."

Samuelson: "(But), as global investors shift to other markets, big federal budget deficits will compete increasingly with private companies for credit. Higher interest rates will crowd out some business investment. Productivity will suffer."

Samuelson's conclusion? "Although government can't easily dictate higher productivity, its policies may perversely favor lower productivity. What's politically expedient today - a dubious tax break, a lazy budget deficit, an expensive regulation - may be economically corrosive tomorrow. Don't ditch the future."

Much of this is also what Federal Reserve Chairman Ben Bernanke highlighted in testimony to Congress on Thursday, Jan. 18. After I've had a chance to read his statements, I may continue this discussion next week.

Brian Trumbore