Although 70% of the Economy Is Consumer Spending, It’s Not the Consumer Spending You Think It Is

December 16, 2024

By Robert Wiedemer

I thought that since we are in the holiday shopping and entertainment season that it was a good time to talk about consumer spending. And, in particular, why a slowdown in retail and restaurant spending may not have a much impact on the economy as some stock analysts or economists imply.

These analysts will tell you that 70% of the economy is made up of consumer spending so it’s very important. That’s true. But the consumer spending they are talking about is not the consumer spending we normally think about.

When we think of consumer spending, we usually think of retail shopping, restaurants, and vacations. Especially now, with Christmas shopping and partying, we will hear a lot about how it reflects the economy.

But, that part of consumer spending isn’t that big. In fact, apparel spending, which is a big part of retail sales, is less than 4% of consumer spending.

Actually, the biggest part of consumer spending has nothing to do with shopping or eating out or vacationing. The biggest part is housing at 33%. The next biggest categories are as follows:

Transportation 17%

Food 13%

Insurance 12%

The next categories are much smaller with Cash Contributions, such as alimony or charitable gifts, taking 3% and the next category, education takes 2%.

The reason this is important is that consumer spending is much more stable than you might think because most of it is on items that are non-discretionary. Sure, we may reduce mall shopping or our trips to the restaurant, but for the overall economy it isn’t as important as you might think.

Plus, all that retail spending isn’t as big a boost to the economy as you might think because a lot of those products we buy at the mall or at big box stores are imported. Imported goods are subtracted from our GDP. They aren’t additive. Whereas all of housing and insurance payments go almost entirely to US suppliers.

It's not that consumer spending isn’t important. It is. It’s just not the part of consumer spending that you think of as consumer spending. So, consumer spending is more stable than some might imagine.