I found some interesting data to play with today, published by the Commerce Department's Bureau of Economic Analysis. Table 2.3.5 of the National Income and Product Accounts (NIPA) tables shows Personal Consumption Expenditures. It breaks down these data into major types such as Food, Housing, Medical Care, etc.

I had seen a chart elsewhere talking about how spending on Gasoline and Oil had been rising as a percentage of total expenditures, so I wanted to see what the data are saying now. Sure enough, spending on Gasoline and Oil as a percentage of total PCE bottomed at 2.03% in 2002, and is now at 3.88%, almost twice as high as 6 years ago.

I went digging through the other categories, trying to find where that extra money was coming from. My first thought was that people would be reducing their spending on Clothing and Shoes to pay for the extra gas money, but that turned out to be wrong. Expenditures on Clothing and Shoes as a percentage of total PCE has been in a steady decline from its high of above 11% in 1947 down to just under 4% currently, and such spending has been stable even as gasoline prices have risen.

I found the answer to be the category of Motor Vehicles and Parts. It peaked at 6.28% in Q4 2001, and is now down to 4.25% as of Q1 2008. If you remember 2001, the car manufacturers were offering a whole lot of rebate deals right after the 9/11 attacks in order to help stave off a predicted slump in consumer spending because of the terrorism fears. Those special deals boosted total auto spending in that Q4 2001 quarter.

The attached chart shows that this 2 percentage point drop in car spending pretty much fully accounts for the 2 percentage point rise in gasoline spending. These two series were not correlated much at all prior to the 1970s, but ever since the Arab Oil Embargo the two have shown a pretty nice inverse correlation.

I'm not sure what the larger conclusion might be, except to note that this spending rate on Motor Vehicles & Parts is about as low of a percentage as that series ever sees, so perhaps it is due for a pickup in future quarters. When people put off buying a new car, there is an accumulation of pent up demand which has to get unleashed at some point when the old car finally dies.

Then again, if oil goes to $1000/barrel, then maybe the BEA will have to start tracking consumer spending on horses, tack, and hay.

 

Tom McClellan
Editor
McClellan Market Report