U.S. Economy

Americans Spend More on Stuff They Don't Need

Buying frills plays a growing role in U.S. economic expansions.

Who needs it?

Photographer: Matt Cardy / Getty Images

What makes the U.S. economy grow? A look at consumer spending data offers a simple if perhaps troubling answer: Increasingly, it's people buying stuff they don't need.

Any effort to separate wants from needs involves subjectivity. One person's luxury may be another's necessity. That said, some categories of spending tracked by the Bureau of Economic Analysis -- such as jewelry and restaurants -- consist primarily of stuff that pretty much anyone, if pressed, could do without. Such goods and services make up almost a fifth of personal consumption, or an annualized $2.3 trillion in the three months through September.

For most of the past six decades, this nonessential consumption played a secondary role in economic expansions, with spending on more important items such as groceries and shelter taking the lead. In the new millennium, though, the roles have switched. Since the current recovery began in mid-2009, spending on stuff people don't need has grown at an average annualized rate of 3.3 percent (adjusted for inflation), compared with 2 percent for other stuff. Here's how that looks:


The increasing importance of nonessential spending has various possible interpretations. On the bright side, it could be a sign of greater overall prosperity: If people have largely taken care of their basic needs, then the ups and downs of consumption might simply be migrating to discretionary items. Notably, in the last two recessions, spending in nonessential categories also dropped much faster than in essential ones.

Alternatively, it could reflect the increasing concentration of wealth in the hands of the rich, who naturally devote a larger share of their expenditures to luxury goods and services. Their income has become more volatile in recent decades, so perhaps their spending is doing the same, driving faster growth in nonessential goods during recoveries. If so, that could mean a bumpier ride for less affluent folks. 

Whatever the explanation, the message for a fragile global economy is the same: If you want it to keep growing, you'd better hope Americans keep buying stuff they don't need.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Mark Whitehouse at mwhitehouse1@bloomberg.net

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    James Greiff at jgreiff@bloomberg.net

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