[OPE-L] [Jurriaan] A class dimension in aggregate demand

From: glevy@PRATT.EDU
Date: Tue Nov 22 2005 - 20:54:24 EST


---------------------------- Original Message --------------------------
Subject: A class dimension in aggregate demand
From:    "Jurriaan Bendien" <adsl675281@tiscali.nl>
Date:    Tue, November 22, 2005 1:57 pm
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According to some theories, it is US consumer expenditure that sustains the
world economy, and I wanted to find out the share of high-income households
in this expenditure. According to some estimates, for example, the top
10% of German households are good for about a quarter of total consumer
expenditure. How are things in the USA?

I referred to the 2003 Consumer Expenditure Survey (CES) to get some
indication. The consumer expenditure survey covers income earners aged 14+
within households in the civilian non-institutional population, excluding
the military and nursing home residents. "Consumer units" surveyed are
broadly the same as households, with some small differences.

Excluded from these expenditure estimates, are all purchases by
individuals for business purposes, rather than personal consumption, as
well as all credit/installment payments on items bought before the
reference period. So essentially we are dealing with new personal
consumption expenditure during the reference year. Because of this
coverage and exclusions, the CES total consumer expenditure estimate will
be significantly less than the NIPA total, i.e. it may capture only 60% of
total personal expenditures, relating specifically to new goods and
services bought during the reference year.

The conclusion I reach from the data, is that the top 10% of civilian
households by income (about 30 million people) account for 22.9% of new
personal consumption expenditure in the CES sense, and if you take the 20%
of households earning $70,000+ a year (about 60 million people), they
account for 38.8% of new personal consumption expenditure, or about
1.8 trillion of final consumption demand.  As said, these figures
understate the true expenditure situation, because credit or
installment repayments on items previously bought as well as purchases for
business purposes are excluded, we are only talking about new personal
purchases of goods & services. The military (about 1.1 million people) are
excluded as well. But anyway it's probably realistic to say, that the top
quintile of consumer units - 23.6 million households, or about 60 million
people - are good for half of total household expenditure in the US, if
you included credit repayments previously contracted, and personal
business purchases.

How does this final demand relate to imported goods? Taking the 2002 data,
the total dollar value of consumer goods (not services) used by households
which are imported into the USA (not re-exported) was around $440 billion,
of which (perhaps) $70 billion worth of luxury consumption goods. But even
if we assume that the mentioned 23.6 million households bought all the
imported luxury items, that would only about 3-5% of their total
expenditure.

My simple calculations were as follows:

Total "consumer units" covered in the CES, 2003 = 115.4 million
Average annual consumer expenditures per unit, 2003 = $40,817
Total consumer expenditure, 2003 = $4.7 trillion
(for comparison, NIPA total consumption expenditure, 2003 = $7.7 trillion,
including part of the military and credit repayments etc.)

Consumer units in survey with income of $100,000+, 2003 = 11.5 million
Percentage of $100,000+  income units in total consumer units counted = 10%
Average after tax income, consumer units with income of $100,000+ = $144,146
Average annual consumer expenditure 2003, consumer units with income of
$100,000+ = $93,515
Percentage of $100,000+ after tax income spent on consumer goods and
services = 64.9%
Total consumer expenditure 2003, consumer units with income of $100,000
and over = $1.08 trillion
Percentage share of $100,000+ income units in total consumer expenditure =
22.9%

Consumer units with income of $70,000+, 2003 = 23.6 million
Percentage of $70,000+ income units in total consumer units = 20%
Total consumer expenditure 2003, consumer units with income of $70,000
and over = $1.8 trillion
Percentage share of $70,000+ income units in total consumer expenditure =
38.8%

Source:
ftp://ftp.bls.gov/pub/special.requests/ce/standard/2003/higherincome.txt


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