Changes in components of consumer consumption (1959-99)

A detailed Summary of Changes in components of consumer consumption (1959-99)

Components of Consumption and Their Changes From 1959 until 1999.

Gross Domestic Product (GDP) is the final value of all goods and services produced domestically in a year, minus any trade deficit. It can also be interpreted as the sum of the total spending of its component parts. There are several components of GDP, and those include Consumer Spending (C), commercial and residential Investment Spending, Government Spending, and Net Exports (value of all exports minus the value of all imports). The largest component of GDP is Consumer Spending, totaling about 6.255 trillion dollars in 1999, or sixty seven percent (67%) of GDP. Like GDP, Consumer Spending (here after C) is also determined by several component parts. C is the sum of consumer spending on Durable Goods (DG: goods that can be stores and have an average service life of three years), Non-Durable Goods (NDG: storable goods with service life of less than three years.), and Services Spending (S: commodities that cannot be stored and must be consumed at the time of purchase). T!

his paper will deal exclusively with the C component of GDP, and more specifically with the components of C and their changes from 1959 until 1999. I choose to use Nominal GDP for my ana

Changes in Consumer Consumption and it's Components as a % of GDP (1959-99)

lysis because the actual dollar values are less important than the changes in the proportions of the components relative to GDP. All of the data used in this paper came from, or was derived from the Economic Report of the President (February 2000), Appendix B, prepared by the Counsel of Economic Advisors (available online at *http://w3.access.gpo.gov/usbudget/fy2001/erp.html#erp4*).

Of the three components of Consumer spending, Durable goods spending has changed the least. In 1959 about 8.42% of GDP was spent on DG, while in 1999 DG comprised 8.2% of GDP. This is not surprising if one makes the valid assumption that the demand for durable goods is less elastic than the other components of C. For example, a rational person will not buy more than one washing machine every six years or so, even if their relative income has increased, or if the price of washers decreases. Even if they were inclined to replace a durable good before its service life ended, most people would not consider owning more than one washing machine at a time, or having more than one car per driver. Another reason that DG spending (relative to GDP) does not seem to change is that there have been significant increases in the way that durable goods are manufactured. Advancements in technology and quality control procedures allow manufactures to produce higher quality goods with longe!

The most noticeable change of the three components of C is that of Service Spending (S). In 1959, S made up 25.3% of GDP, while in 1999 S comprised 39.

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