Trends in Consumer Spending, 1959-2000.

Moran, Larry R. ; McCully, Clinton P.

RISING consumer demand for goods and services has been a key element of U.S. economic growth over the past 40 years. Consumer spending, which is measured in the national income and product accounts as personal consumption expenditures (PCE), accounts for about two-thirds of total domestic demand, as measured by gross domestic purchases.(1)

The major trends and developments in consumer spending over 1959-2000 include the following:

* Real consumer spending grew 3.6 percent, slightly faster than total domestic demand.(2) The consumer-spending share of domestic demand in current dollars increased from 62 percent to 65 percent.

* Services' share of consumer spending increased from 40 percent in 1959 to 58 percent in 2000, primarily reflecting increases in the shares of medical care services, financial services, recreation services, and education and research services.(3)

* The increased share of medical care services partly reflected an increase in third-party payments for these services--payments by health-insurance programs and public programs such as Medicare and Medicaid--and partly reflected the aging of the U.S. population.

* The increased share of financial services partly reflected an increase in the net worth of households and the growing portion of household assets accounted for by financial assets, such as pension fund reserves, stocks, mutual funds, and money market funds.

* The increased share of recreation services partly reflected increased affluence that supported spending for newly available services, such as cable television and the Internet.

* The increased share of education and research services partly reflected an increase in the percent of the adult population that attended college.

* Nondurable goods' share of consumer spending decreased from 47 percent to 30 percent, reflecting declining shares of most categories.

* The decreased share of food reflected a large decrease in the share of food for meals prepared at home that more than offset a slight increase in the share of meals purchased away from home.(4)

* The decreased share of clothing and shoes reflected declining relative prices.

* In contrast, the share of prescription drugs increased, reflecting the development of new drugs, the increase in third-party payments from private health insurance and public programs such as Medicaid, and the aging of the population.

* Durable goods' share of consumer spending decreased from 13 percent to 12 percent, reflecting declining shares of new cars, household appliances, and furniture and bedding that more than offset increasing shares of new trucks and consumer electronics.

* The decreased share of household appliances and furniture and bedding partly reflected declining relative prices.

* The decreased share of new cars partly reflected declining relative prices and a shift in consumer preference to minivans and sport utility vehicles.

* The cyclical pattern of real consumer spending was less pronounced than that of business investment, mainly reflecting spending for services, which increased in each of the six recessions.

* Despite services' moderate cyclical pattern and its growing share of PCE, PCE's cyclical pattern did not become less pronounced over time, largely because of the growing importance of services that are more sensitive to changes in income--such as financial services, recreation, and foreign travel by U.S. residents.

The remainder of this article discusses the growth in real PCE and its components from 1959 to 2000, the cyclical patterns in real PCE, and the changes in the composition of current-dollar PCE.

Long-term trends

From 1959 to 2000, real consumer spending grew 3.6 percent, slightly faster than the 3.5-percent growth rate of total domestic demand. Consumer spending increased 5.5 percent for durable goods, 3.8 percent for services, and 2.8 percent for nondurable goods (table 1 and chart 1).

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Table 1.--Average Annual Growth of Real PCE and of PCE Prices for
1959-2000, Average Contribution to Percent Change in Real PCE, and
Components Shares of Current-Dollar PCE

 Contribution
 to percent
 Percent change in
 change in real PCE
 quantity (percentage
 index points)

Personal consumption expenditures 3.6 3.6

 Durable goods 5.5 .71

 Motor vehicles and parts 4.3 .26
 New vehicles 4.3 .18
 Autos 2.7 .11
 Trucks 11.4 .07
 Net purchases of used
 vehicles 2.4 .03
 Recreational vehicles(1) 9.6 .01
 Tires, tubes, accessories,
 and other parts 5.7 .05
 Furniture and household
 equipment 6.6 .33
 Furniture and bedding 3.8 .05
 Household appliances 4.3 .04
 China, glassware, tableware,
 and utensils 4.1 .02
 Consumer electronics 13.0 .17
 Televisions 9.5 .04
 Video equipment and media(2) 25.9 .02
 Audio equipment and musical
 instruments(3) 8.3 .05
 Computers and peripherals(2) 69.4 .05
 Software(2) 65.8 .01
 Other durable house
 furnishings(4) 4.9 .06
 Other durable goods 5.7 .12
 Ophthalmic and orthopedic
 equipment 5.1 .01
 Wheel goods and sporting
 equipment 6.3 .05
 Jewelry and watches 6.2 .05
 Books and maps 4.0 .01

 Nondurable goods 2.8 1.05
 Food 2.1 .41
 Food and alcohol purchased for
 consumption at home 1.8 .25
 Food and alcohol purchased for
 consumption away from home 3.0 .17
 Food furnished to employees
 (including military) and food
 produced and consumed on -.8 .00
 farms
 Clothing and shoes 4.5 .28
 Shoes 3.4 .03
 Women's and children's
 clothing and accessories 5.0 .17
 Men's and boys' clothing and
 accessories 4.3 .08
 Energy goods 1.7 .06
 Gasoline and oil 2.4 .08
 Fuel oil and coal -1.5 -.01
 Other nondurable goods 3.7 .29
 Tobacco products -.4 .00
 Prescription drugs 6.6 .05
 Nonprescription drugs 4.6 .02
 Nondurable toys and sport
 supplies(5) 7.0 .06
 Other(6) 3.6 .16

 Services 3.8 1.87
 Housing 3.4 .50
 Owner-occupied nonfarm
 dwellings--space rent 3.8 .37
 Tenant-occupied nonfarm
 dwellings--rent 2.8 .11
 Rental value of farm dwellings -1.9 -.01
 Hotels and motels 3.4 .01
 Other housing services(7) 2.5 .01
 Household operation 3.7 .23
 Electricity 4.0 .07
 Gas 1.2 .01
 Water and other sanitary
 services 3.4 .02
 Telephone and telegraph 7.1 .12
 Cellular telephone(8) 51.8 .02
 Local telephone 4.8 .04
 Long distance telephone 7.7 .06
 Domestic service -.9 .01
 Other household operation
 services(9) 2.7 .02

 Transportation 3.6 .13
 User-operated transportation 3.9 .11
 Motor vehicle repair 3.3 .06
 Motor vehicle rental 3.7 .00
 Motor vehicle leasing(10) 21.4 .02
 Other user-operated
 transportation(11) 2.8 .03
 Purchased local
 transportation -.4 .00
 Mass transit systems -.3 .00
 Taxicab -.2 .00
 Purchased intercity
 transportation 4.9 .03
 Railway -2.4 .00
 Bus .1 .00
 Airline 6.5 .03
 Other(12) 7.5 .00

 Medical care 4.4 .42
 Physicians 3.5 .09
 Dentists 2.9 .02
 Home health care 12.0 .02
 All other professional
 medical services(13) 5.8 .05
 Hospitals 4.6 .17
 Nursing homes 8.5 .04
 Health insurance 2.7 .02

 Recreation 5.3 .14
 Motion picture admissions -.3 .00
 Live entertainment,
 excluding sports 3.7 .00
 Spectator sports 4.3 .01
 Radio and television repair 1.7 .00
 Casino gambling 10.5 .02
 Cable television 16.8 .02
 Lotteries 21.4 .01
 Video rental(14) 20.0 .01
 Internet service
 providers(15) 76.9 .01
 Other recreation
 services(16) 3.8 .06

 Other services 3.8 .46
 Personal care(17) 1.6 .02
 Personal business 4.2 .27
 Financial services 4.5 .23
 Brokerage charges and
 investment counseling 6.8 .05
 Bank service charges,
 trust services, and
 safe deposit box rental 5.8 .03
 Services furnished
 without payment by
 financial intermediaries
 except life insurance
 carriers 5.0 .11
 Expense of handling life
 insurance and pension
 plans 3.1 .04
 Legal services 2.5 .02
 Funeral and burial expenses .8 .00
 Other personal business 4.0 .02
 Education and research 3.8 .07
 Higher education 3.4 .03
 Private elementary and
 secondary schools 2.8 .01
 Private nursery schools 7.7 .00
 Commercial and vocational
 schools 5.3 .02
 Foundations and nonprofit
 research 5.4 .01
 Religious and welfare
 activities 4.6 .10
 Net foreign travel ..... .00
 Foreign travel by U.S.
 residents 5.7 .05
 Less: Expenditures in the
 United States by
 nonresidents 6.9 -.05

 Shares of
 Percent current-dollar
 change PCE (percent)
 in price
 index 1959 2000

Personal consumption expenditures 4.0 100.0 100.0

 Durable goods 1.9 13.4 12.1

 Motor vehicles and parts 2.8 5.9 5.0
 New vehicles 2.5 4.2 3.1
 Autos 2.4 4.1 1.5
 Trucks 2.7 .1 1.6
 Net purchases of used
 vehicles 5.6 .9 1.1
 Recreational vehicles(1) 3.4 .0 .2
 Tires, tubes, accessories,
 and other parts 1.8 .7 .7
 Furniture and household
 equipment .5 5.7 4.6
 Furniture and bedding 2.6 1.5 1.0
 Household appliances 1.0 1.3 .6
 China, glassware, tableware,
 and utensils 3.3 .5 .5
 Consumer electronics -3.4 1.0 1.6
 Televisions -2.4 .5 .4
 Video equipment and media(2) -5.6 ..... .2
 Audio equipment and musical
 instruments(3) -.3 .5 .3
 Computers and peripherals(2) -19.4 ..... .4
 Software(2) -16.8 ..... .1
 Other durable house
 furnishings(4) 2.1 1.3 1.0
 Other durable goods 2.7 1.8 2.5
 Ophthalmic and orthopedic
 equipment 3.9 .2 .3
 Wheel goods and sporting
 equipment 2.1 .6 .9
 Jewelry and watches 2.1 .6 .8
 Books and maps 4.4 .3 .5

 Nondurable goods 3.7 46.7 29.7
 Food 4.0 25.4 14.1
 Food and alcohol purchased for
 consumption at home 3.7 19.1 8.3
 Food and alcohol purchased for
 consumption away from home 4.7 5.5 5.7
 Food furnished to employees
 (including military) and food
 produced and consumed on 4.3 .8 .1
 farms
 Clothing and shoes 1.7 8.3 4.9
 Shoes 2.7 1.4 .7
 Women's and children's
 clothing and accessories 1.3 4.5 2.7
 Men's and boys' clothing and
 accessories 2.1 2.4 1.5
 Energy goods 4.4 4.8 2.7
 Gasoline and oil 4.2 3.5 2.4
 Fuel oil and coal 5.6 1.3 .3
 Other nondurable goods 3.9 8.2 8.1
 Tobacco products 6.6 2.1 1.1
 Prescription drugs 3.6 .6 1.6
 Nonprescription drugs 3.6 .4 .5
 Nondurable toys and sport
 supplies(5) 1.5 .7 1.0
 Other(6) 3.6 4.4 3.9

 Services 4.7 39.9 58.1
 Housing 4.2 14.2 14.2
 Owner-occupied nonfarm
 dwellings--space rent 4.1 9.1 10.4
 Tenant-occupied nonfarm
 dwellings--rent 4.1 3.9 3.1
 Rental value of farm dwellings 5.1 .6 .1
 Hotels and motels 5.5 .3 .4
 Other housing services(7) 4.7 .1 .2
 Household operation 3.8 5.9 5.7
 Electricity 3.6 1.5 1.5
 Gas 5.2 .9 .6
 Water and other sanitary
 services 5.8 .4 .7
 Telephone and telegraph 1.5 1.3 1.9
 Cellular telephone(8) -3.9 ..... .4
 Local telephone 2.5 .7 .7
 Long distance telephone .4 .6 .7
 Domestic service 4.9 1.1 .3
 Other household operation
 services(9) 5.0 .7 .7

 Transportation 4.5 3.3 4.0
 User-operated transportation 4.6 2.3 3.2
 Motor vehicle repair 4.7 1.4 1.7
 Motor vehicle rental 3.8 .0 .1
 Motor vehicle leasing(10) 1.0 ..... .6
 Other user-operated
 transportation(11) 4.9 .9 .8
 Purchased local
 transportation 5.1 .6 .2
 Mass transit systems 5.0 .4 .1
 Taxicab 4.9 .2 .1
 Purchased intercity
 transportation 3.9 .4 .6
 Railway 5.0 .1 .0
 Bus 5.1 .1 .0
 Airline 3.7 .2 .5
 Other(12) 5.2 .0 .1

 Medical care 5.9 5.2 14.8
 Physicians 5.9 1.7 3.6
 Dentists 5.7 .6 .9
 Home health care 5.4 .0 .7
 All other professional
 medical services(13) 5.3 .4 1.5
 Hospitals 6.0 1.8 5.9
 Nursing homes 5.5 .1 1.2
 Health insurance 6.6 .5 1.0

 Recreation 4.0 2.0 3.9
 Motion picture admissions 5.4 .3 .1
 Live entertainment,
 excluding sports 5.2 .1 .2
 Spectator sports 4.0 .1 .1
 Radio and television repair 2.2 .3 .1
 Casino gambling 4.2 .0 .7
 Cable television 4.9 .0 .6
 Lotteries 4.3 .0 .2
 Video rental(14) -.4 ..... .1
 Internet service
 providers(15) -3.8 ..... .2
 Other recreation
 services(16) 3.2 1.2 1.6

 Other services 5.0 9.3 15.6
 Personal care(17) 4.6 1.9 1.1
 Personal business 5.4 4.3 9.5
 Financial services 3.6 2.9 7.7
 Brokerage charges and
 investment counseling 3.7 .4 1.2
 Bank service charges,
 trust services, and
 safe deposit box rental 5.2 .3 1.0
 Services furnished
 without payment by
 financial intermediaries
 except life insurance
 carriers 5.6 1.2 4.0
 Expense of handling life
 insurance and pension
 plans 5.6 1.0 1.5
 Legal services 6.5 .6 1.0
 Funeral and burial expenses 5.4 .4 .3
 Other personal business 4.9 .3 .5
 Education and research 5.4 1.3 2.4
 Higher education 5.9 .6 1.2
 Private elementary and
 secondary schools 5.2 .3 .4
 Private nursery schools 4.6 .0 .1
 Commercial and vocational
 schools 4.6 .2 .5
 Foundations and nonprofit
 research 4.4 .1 .2
 Religious and welfare
 activities 4.4 1.6 2.7
 Net foreign travel ..... .3 -.2
 Foreign travel by U.S.
 residents 3.4 .7 1.2
 Less: Expenditures in the
 United States by
 nonresidents 4.5 .3 1.4

(1) Includes motor homes and nonmotor trailers.

(2) Changes from 1977 to 2000; no expenditures are recorded
before 1977.

(3) Includes audio equipment; records, tapes and disks; and musical
instruments.

(4) Includes such house furnishings as floor coverings, comforters,
quilts, blankets, pillows, picture frames, mirrors, art products,
portable lamps, and clocks. Also includes writing equipment and hand,
power, and garden tools.

(5) Includes toys, dolls, games, sport supplies, ammunition, and film
and photo supplies.

(6) Toilet articles, medical supplies, gynecological goods, stationery
and writing supplies, net foreign remittances, magazines, newspapers,
sheet music, flowers, seeds, potted plants, cleaning and polishing
preparations, textile house furnishings, lamp shades, brooms,
and brushes.

(7) Includes clubs, schools, and other group housing.

(8) Changes from 1985 to 2000; no expenditures are recorded
before 1985.

(9) Includes maintenance services for appliances and house furnishings,
moving and warehouse expenses, postages and express charges, premiums
for fire and theft insurance on personal properly less benefits and
dividends, and miscellaneous household operation services.

(10) Changes from 1984 to 2000; no expenditures are recorded
before 1984.

(11) Includes other motor vehicle services; bridge, tunnel, ferry, and
road tolls; and premiums less benefits and dividends for motor vehicle
insurance.

(12) Includes baggage charges, coastal and inland waterway fares,
travel agents' fees, and airpot bus fares.

(13) Includes medical laboratories, eye examinations, and all other
professional medical services.

(14) Changes from 1982 to 2000; no expenditures are recorded
before 1982.

(15) Changes from 1988 to 2000; no expenditures are recorded
before 1988.

(16) Includes other commercial participant amusements, clubs and
fraternal organizations; sightseeing; private flying; bowling and
billiards; pari-mutuel net receipts; pets and pets services excluding
veterinarians; veterinarians; film developing; photo studios; sports
and recreational camps; and high school recreation.

(17) Includes cleaning, storage, and repair of clothing and shoes;
barbershops, beauty parlors, and health clubs; and watch, clock, and
jewelry repair, costume and dress suit rental, and miscellaneous
personal services.

(18) Includes current expenditures (including consumption of fixed
capital) of trade unions and professional associations, employment
agency fees, money order fees, spending for classified advertisements,
and tax return preparation services.

NOTE.--For each component, the contribution to change in real PCE
for 1959-2000 was calculated as the mean of the component's annual
contributions to change in real PCE.

The long-term trends in the growth of consumer spending reflected the interaction of many factors that influence consumer decision-making. Among these, increasing affluence, changing demographics, technological innovations, and changing tastes and lifestyles were particularly important.

Increasing real incomes, accumulation of household assets, and consumers' willingness to take on more debt resulted in higher spending on discretionary items relative to spending on basic necessities. In 1959-2000, real per capita disposable personal income (DPI) grew at an annual rate of 2.3 percent; this growth partly reflected demographic changes, as workers matured into their more productive earning years and as labor force participation rates rose because more women worked outside the home (charts 2 and 3). Over the period, the net worth of households increased at an annual rate of 7.9 percent, about double the increase in PCE prices. The share of household assets accounted for by pension fund reserves, corporate equities, mutual funds, and money market funds nearly doubled from 23 percent to 42 percent; the share of families that owned stocks directly or indirectly increased from 11 percent to 52 percent. The ratio of consumer credit to DPI rose from 16.3 percent to 22.5 percent.

[GRAPHS OMITTED]

Much of the increase in discretionary spending was for home furnishings, motor vehicles, recreation (including home entertainment activities and recreation away from the home), brokerage charges and investment counseling (largely reflecting the increases in household financial assets), intercity travel (particularly by air), and electricity (for air conditioning, household appliances, audio and video equipment, and computers). The trends toward a more mature American population and increased affluence led to higher home-ownership rates and to higher spending for home furnishings (chart 4). In addition, increased third-party payments from private health insurance and public programs including Medicare and Medicaid, and the increased number of elderly contributed to higher spending for medical care--including home health care, nursing homes, and prescription drugs.

[GRAPH OMITTED]

Technological innovations resulted in a proliferation of newly available goods and services, including cable television, computers, new electronic toys and games, cellular telephone services, video equipment, Internet services, video rentals, and newly developed medical services and prescription drugs. For example, three-fourths of households had cable and satellite television by 2000, and one-half had Internet service. Innovations also lowered the relative prices of many of these new goods and services and of some of the more established goods and services (such as audio equipment and long-distance telephone services) and thus affected consumer spending patterns; of special note, computer prices decreased at an annual rate of 19.4 percent from 1977 to 2000.

Changes in spending patterns also reflected changes in consumer tastes and lifestyles. For example, a more affluent and active population ate more meals away from home and bought vehicles, such as minivans and sport utility vehicles, that were more versatile than the traditional family car. Families spent more on child-care services. Faster growth in population and employment in suburban areas led to higher spending for user-operated transportation and to lower spending for mass transportation.(5) Faster growth in the population in the southern and western regions of the country led to higher spending for air-conditioning and for activities associated with warmer climates. Consumers spent more on recreational activities--particularly on casino gambling, lotteries, sightseeing, and amusement parks.

Cyclical patterns

The cyclical pattern of consumer spending was less pronounced than that of total domestic demand, largely reflecting the more moderate cyclical movements of services, which increased in each of the six recessions (table 2). Housing increased in all of the recessions, and medical care, household operations, and recreation increased in all but one.

Table 2.--Average Annual Growth Rates for Real Gross Domestic
Purchases and Real Personal Consumption Expenditures
During Recessions and Expansions

[Percent]

 Personal consumption expenditures
 Gross
 domestic Durable Non-durable
 purchases Total goods goods Services

Recessions:

 1960:II-1961:I -1.4 -0.5 -12.0 0.0 2.7
 1969:IV-1970:IV -0.3 1.7 -7.6 2.7 3.6
 1973:IV-1975:I -3.8 -0.8 -7.7 -2.0 2.3
 1980:I-1980:III -7.5 -2.6 -13.4 -3.0 0.8
 1981:III-1982:IV -1.5 1.9 1.2 1.6 2.4
 1990:II-1991:I -2.9 -1.2 -9.9 -1.3 7.0

Expansions:

 1961:I-1969:IV 5.0 4.8 8.1 3.6 5.1
 1970:IV-1973:IV 4.8 4.8 11.9 2.8 4.6
 1975:I-1980:I 4.4 4.0 5.9 3.3 4.0
 1980:III-1981:III 5.2 2.2 5.4 1.8 1.7
 1982:IV-1990:III 4.4 4.0 7.0 3.0 4.0
 1991:I-2000:IV 4.1 3.8 7.3 3.4 3.3

In light of services' moderate cyclical pattern and its growing share of PCE, one might expect the cyclical pattern of PCE to have become less pronounced over time. However, that was not the case, partly because of the growing importance of services that are more sensitive to changes in income--services such as brokerage charges and investment counseling, recreation, airline services, and foreign travel by U.S. residents.

Of the major PCE components, durable goods had the most pronounced cyclical pattern. In particular, motor vehicles fell sharply in recessions and increased strongly in expansions. For most recessions, durable goods tended to turn down before the recession began, while nondurable goods and services did not.

Current expansion.--In the current expansion (which began in the second quarter of 1991), real consumer spending has increased at an annual rate of 3.8 percent. This rate of growth has been slower than those in all but the short 1980-81 expansion; the slower growth has been mainly attributable to slower growth in services. In the current expansion, as in most of the previous expansions, the growth rate of consumer spending has been slightly less than that of total domestic demand.

Durable goods has increased 7.3 percent, a little less than its average for expansions. The largest increases have been in computers (51.0 percent), software (40.4 percent), video goods (13.4 percent), new trucks (8.9 percent), wheel goods and sporting equipment (8.0 percent), and jewelry and watches (7.7 percent).

Nondurable goods increased 3.4 percent, about half a percentage point above its average for expansions. The largest increases have been in toys and sport supplies (9.7 percent), clothing and shoes (6.1 percent), and prescription drugs (6.0 percent).

Services increased 3.3 percent, about half a percentage point below its average for expansions. The slow growth has been largely accounted for by housing services (2.0 percent) and medical care services (2.4 percent). In contrast, the largest increases have been in recreation services (5.4 percent) and financial services (4.9 percent).

Changes in shares of PCE

The share of current-dollar PCE accounted for by services increased from 39.9 percent in 1959 to 58.1 percent in 2000 (chart 5). The increase was primarily accounted for by medical care, whose share increased from 5.2 percent to 14.8 percent, and by financial services, whose share increased from 2.9 percent to 7.7 percent (chart 6 and table 1). The increase in the share of medical care was primarily accounted for by hospitals, physicians, and nursing homes and was partly a result of increased third-party payments from health insurance and public programs, including Medicare and Medicaid, and of the aging population. The increases in hospitals' share largely occurred before 1979; thereafter, the increases were moderated by declines in admissions and in average length of stay in community hospitals.

[GRAPHS OMITTED]

The increase in the share accounted for by financial services largely reflected the increased affluence of consumers. The increase was primarily accounted for by services furnished by commercial banks, loans expenses of mutual funds, and brokerage charges and investment counseling.

The share accounted for by recreation services increased from 2.0 percent to 3.9 percent. The increase was primarily accounted for by casino gambling, partly due to an increase in the number of jurisdictions where such activities were legal, and by cable television, partly due to increased availability.

The share accounted for by education and research services increased from 1.3 percent to 2.4 percent. Shares for all categories of education increased, but the share for higher education increased the most--from 0.6 percent to 1.2 percent. This increase reflected the increased value placed on college education; college enrollment increased at an annual rate of 3.7 percent from 1959 to 1997, more than triple the 1.1-percent increase in the U.S. population.

The share accounted for by telephone services increased from 1.3 percent to 1.9 percent, largely reflecting increases in the share of U.S. households with telephones, in the average number of lines per household, in the use of cellular phones, in the use of long-distance services, and in the use of new services--such as caller ID, call forwarding, and call waiting. The increased use of cellular phones reflected both increases in the availability of cellular services and sharply decreasing rates. The increased use of long-distance services was partly due to much lower rates that resulted from advances in technologies, changes in Federal regulations for the industry in the mid-1980's, and the deregulation of long-distance service providers in the mid-1990's.

The share accounted for by intercity transportation services increased from 0.4 percent to 0.6 percent, largely reflecting increases in purchases of airline services, as consumers took advantage of discount fares after the deregulation of airlines in 1978, and in purchases of travel agency services. In contrast, the share accounted for by local transportation services decreased from 0.6 percent to 0.2 percent, largely reflecting relatively small growth in population in the areas of the country that have extensive mass transportation systems, the growth of employment centers in suburban areas, and the relatively larger increases in the cost of commuting by mass transportation than by car.

The share accounted for by nondurable goods decreased from 46.7 percent to 29.7 percent, reflecting decreases in the shares of most categories of nondurable goods. The share accounted for by food decreased from 25.4 percent in 1959 to 14.1 percent in 2000; a large decrease in the share of food for meals prepared at home more than offset a slight increase in the share of meals purchased away from home. The share of clothing and shoes decreased from 8.3 percent to 4.9 percent, and the share of energy goods decreased from 4.8 percent to 2.7 percent.

The share accounted for by durable goods was 13.4 percent in 1959; it fluctuated between 11.2 percent and 14.5 percent thereafter and was 12.1 percent in 2000. The decrease in durable goods' share was accounted for by furniture and household equipment and by motor vehicles and parts. The share of furniture and household equipment decreased from 5.7 percent to 4.6 percent, largely reflecting decreases in the shares of household appliances and of furniture and bedding. The share of motor vehicles and parts decreased from 5.9 percent to 5.0 percent, reflecting a decrease in the share of new autos that more than offset an increase in the share of new trucks.

Personal Consumption Expenditures: Definition and Coverage

In the national income and produce accounts, personal consumption expenditures (PCE) is a major component of gross domestic product, which is measured as the sum of goods and services produced in the United States and purchased by final users. It is also a major component of gross domestic purchases, a measure of purchases by U.S. residents regardless of where the purchased goods and services were produced.

PCE measures the goods and services purchased by individuals and by the nonprofit organizations that serve them. These individuals and organizations consist of those in the United States who have resided, or expect to reside, in this country for 1 year or more. PCE also includes purchases by U.S. civilian and military personnel stationed abroad, regardless of the duration of their assignments, and by U.S. residents traveling or working temporarily abroad.

PCE consists primarily of market transactions and includes purchases from private business, from government enterprises, and from government agencies. The purchases from government agencies consist mainly of tuition payments for higher education, charges for medical care, and charges for water and sanitary services. PCE includes expenditures financed through certain government programs--primarily those that provide medical care to the elderly, poor, military dependents and retirees, and active-duty military personnel at nonmilitary facilities, and that provide aid to students and assistance for purchases of food and fuel.

PCE also includes imputed purchases that keep PCE invariant to the way in which certain activities are carried out, such as (1) whether housing and institutional structures and equipment are rented or owned, (2) whether employees are paid in cash or in kind, (3) whether farm products are sold or consumed on the farm, (4) whether saving, lending, and borrowing are direct or are intermediated, and (5) whether intermediated financial transactions involve an explicit or an implicit service charge. These imputations include the rental value of owner-occupied housing, employment-related imputations (including the value of food, lodging, and clothing received in kind by employees and the value of employer contributions to employee health insurance), farm products consumed on farms, and services furnished without payment by financial intermediaries except life insurance carriers.

PCE of nonprofit organizations serving individuals equals their operating expenses, including an imputed rental charge for the buildings and equipment that they own and use. The rental charge covers net interest (mortgage interest), indirect business taxes (property taxes), and consumption of fixed capital.

PCE differs in both coverage and definition from measures of household consumption, such as the Bureau of Labor Statistics' Consumer Expenditure Survey (CEX). Unlike the CEX, PCE coverage includes U.S. military personnel in the United States and abroad, employees of U.S. businesses abroad for 1 year or less, U.S. government civilian personnel stationed abroad, and nonprofit institutions serving individuals. In addition, the CEX is a measure of out-of-pocket spending, so it does not include imputations for housing and financial services, employment-related imputations except for the value of rent and meals as pay, and expenditures financed through government programs.

(1.) Gross domestic purchases--a measure of purchases by U.S. residents regardless of where the purchased goods and services were produced--is calculated as the sum of personal consumption expenditures, gross private domestic investment, and government consumption expenditures and gross investment; thus, gross domestic purchases includes imports of goods and services and does not include exports of goods and services.

(2.) Unless otherwise specified, all percent changes in this article are at average annual rates.

(3.) Financial services include brokerage charges, investment counseling, bank service charges, trust services, safe deposit, services furnished without payment by financial intermediaries except life insurance carriers, and expense of handling life insurance and pension plans.

(4.) In the NIPA's, food for meals prepared at home are "food purchased for off-premise consumption," and meals purchased away from home are "purchased meals."

(5.) User-operated transportation includes motor vehicle repair, rental, leasing, parking, washing, tolls, and insurance.

Jennifer S. Argueta assisted in preparing this article.