Question

Go to the St. Louis Federal Reserve FRED database, and find data on Personal Consumption Expenditures (PCEC), Personal Consumption Expenditures: Durable Goods (PCDG), Personal Consumption Expenditures: Nondurable Goods (PCND), and Personal Consumption Expenditures: Services (PCESV).

a. Using the most recent data, what percentage of total household expenditures is devoted to the consumption of goods (both durable and nondurable goods)? What percentage is devoted to services?

b. Given these data, which specific component of household expenditures would be most impacted by a reduction in overall household spending? Explain.

Short answer

a. 34.63% is devoted to goods and 65.37% is devoted to services.

b. Services would be the most affected.

Step-by-step solution

Step 1. Introduction

Goods are tangible items that satisfy human wants and needs and provide utility. Goods can be of two types durable and non durable. Durable goods are the ones that can be consumed for a long time such as machines. Non durable goods are those goods that are not durable and cannot be consumed for a long time, e.g. food, clothes.

Services are intangible items that satisfy needs nad provide utility. Personal consumption expenditure refers to the spending by hoseholds on goods and services.

Step 2. Explanation

(a)

The federal reserve data shows that personal consumption expenditure in 2021:Q4 was 16,335.45. The personal consumption expenditure on durable goods is 2,061.264. The personal consumption expenditure on non durable goods is 3,594.977. The personal consumption expenditure on services is 10,679.209.

Percentage of household expenditure spent on goods can be obtained as,

$=\frac{2,061.264+3,594.977}{16,335.45}\times 100=34.63\%$

Percentage of household expenditure on services can be obtained as,

$=\frac{10,679.209}{16,335.45}\times 100=65.37$

(b)

The above data shows that a reduction in the overall household spending would affect household expenditure on services.