Tuesday, September 22, 2009

The Wealth of Consumers

The fact that consumer spending has reached the all time high of 72% of GDP is being used by alarmist to suggest that a long down turn is underway. (see chart below) For various reasons, some people do not want to see the good and to be happy.




It is natural for consumer spending as a portion of total GDP to spike during recessions, so, yes there will be a decline in the number during the years ahead, but nothing to fret about. The reality is that consumers are in the process of making a dramatic shift in spending. They are spending less on goods and more on services. This is a continuation of decades of more efficiently produced goods. In the 1950's it took half of our working population to produce the goods needed. Today, 9% of the population can produce all the goods we need.  The advent of Internet connected mobile computers will accelerate the trend; more services, less goods.  

Gary Shilling uses the wealth displayed in the chart to predict a decline in wealth in coming years. He does not want to believe that standards of living can just keep getting easier. Obama uses the willingness of Americans to spend huge sums for joint replacements and other treatments that were not available a few years ago to decry the growth in health care expenses. The reality is that we are spending more on service because we can afford to do so. My Grandfather was virtually crippled by failing joints during a time when joint replacements were not worth the risk.

Yes, the recession forced cut backs. No, the recession did not end the trend. We face a bright future.

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