Retail is in trouble. Sales declined for the second month in a row in the U.S. in March, and there’s talk that perhaps traditional retail has passed a tipping point, with lots of store closings, layoffs and bankruptcies to come.
One obvious reason for retailer’s difficulties is the rise of Amazon.com Inc. and other establishments that the Census Bureau classifies as “nonstore retailers.”
There have been even bigger shifts over the decades, though, in what we spend our money on, according to the personal consumption expenditures database maintained by the Bureau of Economic Analysis.
Increasingly, it’s not tangible stuff that you buy in a store or order online, but services.
Health care is by far the biggest contributor to this move from goods to services — spending on health care services has gone from 3 percent of personal consumption expenditures in 1929 to 17.2 percent last year.
Spending on pharmaceuticals made up another 3.8 percent of personal consumption in 2015.
These huge spending gains can be chalked up partly to medical advances, an aging population and rising expectations for health care.
But they also can lead a person to wonder to whether there isn’t something terribly inefficient about how the U.S. delivers medical care.
Outside of health care, there are a few other services that we’re spending lots more on than we used to:
There’s evidence here that spending is shifting from tangible goods to virtual ones such as education and online pursuits. But the gains in these areas come nowhere near the spending increase on financial services. And while some of that increase can be spun positively, it has been an awfully big increase.
Economist Angus Deaton has been making headlines lately with his argument that the U.S. economy is being distorted by health-care and financial sectors chock full of “rent-seeking” firms that enlist the help of politicians to maintain big profit margins.
Maybe that helps explain why spending on those categories has gone up so much — and why retail has been struggling.
What are we spending less on? The two biggest decliners by far have been groceries and clothing, although the share of spending going to cars and to furniture and home appliances has fallen a lot since the 1950s as well.
These declines are partly the product of affluence — with more to spend, the share that goes to necessities such as food and clothing can drop. They’re also the result of productivity gains and overseas competition that have put downward pressure on the prices of some products.
Apparel prices in the U.S., for example, have been rising more slowly than prices overall since 1970, and have been essentially flat since the early 1990s.
Some of the declines in the share of spending going to cars and durable goods for the home can be chalked up to such positive factors as well — but it’s also possible that the weak economy since 2000 has led to skimping on such big-ticket items.
Then, once again, there’s all that money going to health care and financial services — $3.1 trillion in 2016. Surely some of that could have been spent on shopping instead. This includes bills paid by health insurance and government programs, not just out-of-pocket consumer spending.
Another category that has grown a lot, albeit from a small base, is spending in the U.S. by non-residents (aka tourism). It is actually subtracted out of personal consumption expenditures, and counted elsewhere in the National Income and Product Accounts as a services export.