GDP - consumer consumption

Details
Last Updated: Saturday, 15 July 2023 04:35
Published: Sunday, 20 September 2020 16:37
Hits: 575

GDP : One way to calculate GDP is to count all the expenses incurred by people, businesses and Government. Here we look at the component of GDP pertaining to expenses incurred by consumers.

The bea.gov website has all the details of GDP. If we look at PCE (Personal Consumption Expenditure) for 2019, we see $14.8T  as total money spent by Consumers.

https://apps.bea.gov/iTable/iTable.cfm?ReqID=19&step=2#reqid=19&step=2&isuri=1&1921=underlying

We will divide consumer expenses in 2 parts => Retail sales and Services sales:

1. Retail sales:

It includes all durable and non durable goods sales

Retail Sales: A big component of GDP is Retail Sales.

This link describes Retail sales:

https://www.thebalance.com/what-is-retail-sales-3305722

So, you can think of retail sales as anything end consumers buy from a store as well as online including services as hair dressing, hotels, restaurants, bars, etc.

This link from USA census website provides details of retail sales starting from 1992.

https://www.census.gov/retail/marts/www/timeseries.html

This link shows Total Retail sales including everything (Stores selling physical goods (physical/online), gasoline, restaurants, Auto).

https://www.census.gov/retail/marts/www/adv44x72.txt

2019 Retail Categories: For 2019, Total Retail sales were $6.2T. There are 13 retail categories. Auto turns out to be biggest component of Retail sales. Following are few important categories for 2019.

  1. Auto: For 2019, Auto sales were about $1.1T. This includes Auto services also. About 17M passenger vehicles got sold in USA in 2019, with an avg price of $35K. So, that would imply 17M*$35K = $600B in new car sales. Then there are used car sales, and auto parts sales and auto services, that probably account for remaining other $0.5T ($400B in used car sales + $100B in repairs as per this link: https://carsurance.net/blog/automotive-industry-statistics/ )
  2. Online or mail only business (non-store): These were about $0.8T in 2019, a 10 fold rise from $0.08T in 1992. Online sales will pretty soon exceed Auto sales.
  3. Food services, drinking places: In 2019, this totaled $0.8T
  4. Grocery stores: About $0.7T for 2019
  5. Gas: For 2019, Gas sales were about $0.5T. Assuming gas prices of $2/gallon, that implies sale of 0.25T gallons of gas used. With 200M vehicles on road, and each vehicle averaging 12K miles/year and let's assume 20miles/gallon as car gas consumption, that implies 12K/20 = 0.6K gallons used every year (or about 2 gallons a day which seems reasonable). So, total gasoline per year is easily 200M*0.6 = 120B gallons of gasoline consumed every year. Of course, a lot of these vehicles burn a lot more than 2 gallon a day (looks more like 4 gallons a day), since we are off by a factor of 2.

 If you look at sales data for 1992, retail sales were about $2T. So, in about 27 years, retails sales more than tripled to $6.2T.  What's confounding is that retail sales go up by 4% - 5% every year, even though people's wages are going up by 2% a year (as per IRS tax returns). So, where do people get extra money to keep spending beyond their wage increase, year after year? Maybe it's the extra debt they take to keep spending more than what they earn. But then, the interest will start eating into their income, where they can't afford to take on any more debt. Not sure what's going on. We need to find that?

2. Services Sales:

Bea website shows total sales as $14.8T. "goods" consumption at $4.6T, but Auto sales show as $0.5T (not sure why, since retail sales show auto consumption at $1.1T). Then services consumption is at $10.2T. Part of these services (about $1.6T) was included in retail sales number above. So, we are left with about $8.6T in services that's not part of retail sales.

The main components of this services consumption of $8.6T is as below:

  1. Housing rental cost: This, combined with utility bills, is the biggest component of services. For 2019, total rental expenditure was $2.3T. Rental was $0.6T, while rental equivalent of owner occupied housing was $1.7T. Since 40M households are renting, and assuming avg rental of $15K/year => Total rental = 40M*$15K = $0.6T. Also with 70M homeowners, and assuming $2K/month rental equivalent, we get about 70M*$2K*12=$1.7T. NOTE: this is rental equivalent, the actual cost of home owning is higher since property taxes, interest, insurance, hoa dues can easily amount to $3K/month (with avg home price of $400K, and interest of 3%, property tax of 1%, HOA+insurance of 1% and 3% principal payment, it's easily 8% of home price). NOTE: it's hard to find home owner's cost of owning house, since most of the people have houses that appreciated in price, rather than them buying houses at these high prices. In order to find total expenses for housing, we have to add all housing interest income for all US banks, then add total property tax collection for all houses in USA, then add home insurance income for all insurance companies in USA. We can't include principal payments of mortgages for used houses, since they show up as expense for buyer, but show up as -ve expense for seller (i.e income for seller), so it's just trading of houses between buyer and seller. We have to include revenue from sale of new houses, since these are are the ones that got added to economy. We have to include price appreciation of used houses though. FIXME? Not sure how to include these? FIXME
  2. Housing Utilities: These expenses are around $0.35T with Electricity=$0.2T, Water=$0.1T and Gas=$0.05T
  3. HealthCare: These amounted to $2.5T for doctors visits, hospital bills, nursing home, etc. This is the 2nd biggest component of services. This doesn't include your health premium, as that's included in separate "insurance" category below.
  4. Financial services: These amounted to $0.75T. These include bank fees, brokerage commissions, trading fees, mutual fund charges, etc
  5. Insurance services: These were about $0.45T. These include health insurance, life insurance, auto insurance and home insurance.
  6. Personal Communication services: These add to about $0.35T.  These include Cable/Satellite services ($0.1T), Cell phone ($0.14T), Internet ($75B), landline($25B)
  7. Education services: Cost of college, schools etc amounts to $0.3T
  8. Professional services: These add to about $0.2T. These include legal services ($0.1T), accounting services (tax, etc = $0.05T), various organization dues, burial services, etc.
  9. Public transportation: These amount to $0.2T. These include air ($0.12T), road (cab, bus, etc amounting to $0.06T), rail and water transportation.
  10. Misc expenses: Remaining $1.2T is in many misc categories as social services, religious activities, domestic household services, etc. These also include expenses of non profit institutions which is about $0.5T. Non profit org have gross output of $1.7T and receipt collections of $1.2T, resulting in final consumption expenditure of $0.5T. The reason I think we include expenses of non profit orgs as consumer expenses is not sure. ?FIXME??