January 07, 2004

Chart of the Day: Durable Goods Consumption

Every two weeks or so, the Federal Reserve sends out an e-mail updating/changing/manipulating the GDP numbers. And every once in a while, a chart jumps out at you and prompts a few questions. Here's one such chart (for some reason, I can link to it but not display it.) PCDG_Max.bmp The chart shows the dollar amount (in billions) spent by Americans each quarter on durable goods. It starts in 1947 and continues to this very day. Is the chart showing us anything exceptional? For one, it shows us that there was, indeed, a lot of pent up demand for durable goods after World War Two. This probably also had a lot to do with the proliferation of installment credit. And some of the steepness of the curve can be accounted for by both a rising population and falling prices: there were simply more people, and more of them were buying cars and refrigerators, credit or no. Still, it's hard to escape the fact that between 1990 and today, the amount of money Americans have spent on durable goods has doubled. It exceeds a trillion dollars per quarter now, according to the figures. And this in a time where the population has grown, but certainly not doubled. Chalk it up to credit, without a doubt, the Gift of Greenspan. Two questions: 1) How much longer can this go on? (possible answer...with falling prices from cheaper Asian manufactured goods...quite a bit longer.) 2) The bigger question....was America's industrial dominance post WWII an historical aberration...a time when because of the destruction of rest of the industrialized world, America had a monopoly on the production (and consumption) of durable goods. And bonus question, if America's historical competitive advantage in manufacturing durable goods was anomalous...where does that leave us now? If we can't compete based on price for goods...what about services? Will we become a "nation of shopkeepers" as Adam Smith once said of the British, and Napoleon later repeated? Or will we, as one famous economist has said, simply do each other's laundry? What is it America will produce when it stops its consumption binge?


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