Consumption of Services Steady While Costs Increase?

Interesting take on how apparently there is, in my view, a contradiction between what is inflation and what is the nature of spending and on what. With the increased cost of services and the inflation of prices for food, as well as other durable goods, which for anyone that grocery shops or looks for new furnishings for their home can attest, little wonder the options for the consumer becomes a question of just what will the future look like as we collective allocate more and more of our assets for items just for survival?

Exactly what is the bases for determining what products and services are effected by inflation and how does it effect how the consumer allocates resources? Here the service costs are inflating without consumption and food consumption remains steady, but the cost to the consumer is skyrocketing. How does that work?

Are We Really Consuming More Services?
Source: YiLi Chien, "Are we Really Consuming More Services?" Federal Reserve Bank of St. Louis, October 1, 2015.

October 13, 2015

A good indicator of future economic growth is strong consumer spending. A recent trend indicates an increasing in consumer spending for services, one of the three typical categories for consumer spending. However, spending more on services does not necessarily mean that more services were consumed.  Instead the increase could simply be due to the higher prices of services.

• Spending share of services increased by 21 percent from 1959 to 2014.
• Nondurable goods, such as food and clothes, declined from 40 percent to 22 percent during the same time span.
• The real share of durable goods consumption, cars, furniture and appliances, nearly tripled from 1959- 2014

When evaluating for welfare, real consumption is more important than nominal.  Due to higher inflation rates on services and lower inflation rates on durable consumption goods the conclusion that Americans are dramatically spending more on services is faulty. Due to different inflation rates total consumer spending components are not necessarily good indicators of the real share of consumption in the U.S.