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Discretionary Services Expenditures in This Business Cycle

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Abstract

The pronounced weakness in personal consumption expenditures (PCE) for services has been an unusual feature of the 2007-09 recession and the slow recovery from it. Even in 2010:Q4, when real PCE increased at a relatively robust 4.1 percent annual rate, real PCE on services rose at only a 1.4 percent rate. This weakness has been especially evident in “discretionary” services (to be defined below), which fell more in the recent recession than in previous recessions and since have rebounded more sluggishly. In this post, I suggest that the continued sluggishness in these expenditures lends a note of caution regarding the sustainability of recent PCE strength. Because consumption accounts for about 70 percent of output, this in turn raises some concern about the future strength of the recovery.

Suggested Citation

  • Jonathan McCarthy, 2011. "Discretionary Services Expenditures in This Business Cycle," Liberty Street Economics 20110706, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednls:86754
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    More about this item

    Keywords

    Recession; Personal consumption expenditures; Business cycle; Services expenditures;
    All these keywords.

    JEL classification:

    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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