The Rise and Fall of Consumption in the '00s. A Tangled Tale
63 Pages Posted: 13 Aug 2015 Last revised: 20 Dec 2017
Date Written: December 17, 2017
U.S. consumption has gone through steep ups and downs since 2000. We quantify the statistical impact of income, unemployment, house prices, credit scores, debt, financial assets, expectations, foreclosures, and inequality on county-level consumption growth for four subperiods: the "dot-com recession" (2001--2003), the "subprime boom" (2004--2006), the Great Recession (2007--2009), and the "tepid recovery" (2010--2012). Consumption growth cannot be explained by a few factors; rather, it depends on a large number of variables whose explanatory power varies by subperiod. Growth of income, growth of housing wealth, and fluctuations in unemployment are the most important determinants of consumption, significantly so in all subperiods, while fluctuations in financial assets and expectations are important only during some subperiods. Lagged variables, such as the share of subprime borrowers, are significant but less important.
Keywords: consumption growth, wealth effects, income inequality, debt overhang, consumer credit, consumer expectations, foreclosures, cash-out refi nancing, dot-com recession, subprime boom, Great Recession, tepid recovery
JEL Classification: E21, E24
Suggested Citation: Suggested Citation