Disposable personal income and consumption expenditures are vital metrics for determining the status of an economy based on an individual’s saving and spending ability. The measures can also be used to ascertain and compare economic standards for different states. Using the United States as the point of reference, the metrics have been instrumental in determining and foreseeing the economic trend in American households and thereof fostering measures to improve the economy. As such, data approved by the Bureau of Economic Analysis (BEA) has since been utilized to observe economic trends and scrutinize their effect on the overall status of the economy.
Data Methodology Description
Reliable data is a key factor in determining accurate and relevant economic information. The Bureau of Economic Analysis holds the essential role of reporting economic data and works in conjunction with different government levels ranging from state to international spheres for easy access to a wide range of data. The Federal Reserve Economic Data (FRED) is one of the databases that BEA has been using to report data. Consequently, FRED contains data segments on disposable personal income per capita and consumption expenditures per capita for the United States. The FRED determines the economic metrics by assessing the amount of money that a person earns after tax deductions and transfers while monitoring the expenditure on acquiring goods and services (Federal Reserve Economic Data, 2018). Notably, the use of the chained dollar has been preferable to adjust real dollar amounts to incorporate inflation over time. The data metrics can be monitored for as many years as possible.
Disposable Personal Income Per Capita Chained Dollars
Figure 1: The U.S. disposable personal income per capita chained dollars from 1929 to 2018
Source: FRED Database https://fred.stlouisfed.org/data/A229RC0A052NBEA.txt
Personal Consumption Expenditures Per Capita Chained Dollars
Figure 2: The U.S. personal consumption expenditure chained dollars from 1947 to 2020
Source: National Center for Education Statistics database. https://nces.ed.gov/programs/digest/d18/tables/dt18_106.60.asp
As shown in figure 1, there is a steady increase in disposable personal income per capita from 1929 to 1973. Nonetheless, the peak of 1973 is followed by a steep decline up to the end of 1975. The trend can be associated with the recession of 1973 to 1975, which led to a soaring unemployment rate and decreased investments. Figure 2 also shows a significant decline in personal consumption expenditures per capita during the same period of recession. The widespread financial difficulties spearheaded a decline in consumption components, such as durable and non-durable goods. Another notable decline in Figures 1 and 2 happened between 2007 and 2009 during the sub-prime mortgage crisis. As a result, there was a global financial crisis, and many financial institutions were on the verge of collapse. Hence, both the disposable personal income and consumption expenditures were reduced because of inflation. On the other hand, the U.S. increased tax rates in 2013 for high-income households; this could explain the reduction in disposable income per capita in figure 1. Similarly, figure 2 has a steep decline in personal consumption in 2020. The COVID-19 pandemic triggered massive job losses in the United States, leading to severe financial constraints, which explains the personal consumption decrease in 2020.
Personal income per capita and personal consumption expenditures are important economic metrics and can be influenced by various indicators. Figures 1 and 2 provide a clear picture of the metrics. Some of the factors that affected the metrics in different years include the 1973-1975 recession, 2007 to 2009 mortgage crisis, increased tax rates in 2013, and the COVID-19 epidemic in 2020. By identifying the factors responsible for changes in measurement metrics, economists can suggest counter-measures to boost the economy.
Federal Reserve Economic Data (2018). Federal Reserve Economic Data: FRED: St. Louis Fed. Retrieved September 09, 2020, from https://fred.stlouisfed.org/
Federal Reserve Economic Data (2020). Disposable personal income: Per capita. Retrieved September 9, 2020, from https://fred.stlouisfed.org/data/A229RC0A052NBEA.txt
National Center for Education Statistics database (2018). Table 106.60. Gross domestic product, state and local expenditures, national income, personal income, disposable personal income, median family income, and population: Selected years, 1929 through 2018. Retrieved September 9, 2020, from https://nces.ed.gov/programs/digest/d18/tables/dt18_106.60.asp