Monday, January 4, 2010

Strength in U.S. Consumption... of U.S. Made Goods

The following chart in my post On the Change in Q3 GDP shows that consumption of goods contributed about 1.7% of the third quarter's 2.2% GDP growth, BUT that the importation of goods removed more than 2% (GDP is a function of output WITHIN the United States only; if a good that was consumed here was made elsewhere, the negative value removes it from the overall GDP figure). That got me thinking... everyone is so focused on the U.S. consumer "bouncing back", but that ignores where those goods were made.

Prior to the recent "Great Recession", the marginal good consumed within the U.S. wasn't produced here. This can be seen (below) by the strong relationship between the change in goods consumed and goods imported. More interesting (to me) was the change in the relationship over the previous 12 months. Consumption of goods has indeed declined, but not nearly the level at which imported goods have declined.

Taken together, the chart below shows the difference between the two (the change in the consumption of goods subtracted by the change in the level of imported goods). This can be thought of as a quick and dirty way to estimate the marginal increase / decrease in consumption of goods made within the U.S. (i.e. consumption of goods ex. importation of those goods).

And surprisingly (to me) that level increased by more than $250 billion over the last 12 months.

Not really sure what caused this jump (trading away from expensive imports / trade barriers???), but it looks like the U.S. consumer has already been a much larger source of stability for the U.S. economy than many may have given them credit for.

The question of course remains... what happens now?

Source: BEA