4 thoughts on “Personal consumption expenditures down 3.5%”

  1. The test here is whether or not people are “rationally” updating their expectations of future earnings. That is to say, assuming they’ve taken their future income stream into account (including their chances of being unemployed and the expected duration of unemployment spells), is consumption smooth? do we see big jumps in consumption?

    There can be two causes of jumps in consumption. A sudden realization that your future income is going to be lower than you expected (i.e. the value of your house goes down) or you’re pessimistic. The first is “rational” updating. I put quotes around that word because I think many people take it to mean a lot more than what I’m meaning right now… I mean people can guess their future income with some random error. The second explanation would be a sudden increase in fear.

    The large the drop in consumption the more likely it is that fear is driving the process.

  2. What I meant was that unemployment also made some pretty big jumps during those quarters. Taking this in the context of your “paycheck to paycheck” post a few days ago, I’m inducing that less cash in hand means less consumption. Not an expectation of reduced earning in the future, but a very real pink slip last week.

    By “jump in consumption” do you mean “drop?” I see little minus signs in the personal consumption columns for Q3 and Q4.

Comments are closed.