Shifting sands: Examining patterns of spending on consumer durable goods Behind the Numbers, April 2016

Real personal consumption expenditure (PCE) has always been a key driver of GDP growth in the United States. It’s a little worrying, then, that real PCE growth has slowed after the Great Recession. Between Q3 2009 and Q4 2015, real PCE grew at an average seasonally adjusted annual rate (SAAR) of 2.3 percent, down from 2.9 percent between Q4 2001 and Q1 2008 (the intervening period between the last two recessions).¹ Surprisingly, strong growth in real PCE on goods—not services—has been pushing up total PCE growth since 2009 (figure 1). And within goods, it is consumer durable goods that are doing much of the heavy lifting. For example, between Q3 2009 and Q4 2015, growth in real PCE on durables averaged about 6.5 percent (SAAR) every quarter, up from 6.1 percent between Q4 2000 and Q1 2008. In contrast, growth in real PCE on nondurables slowed during this period.²

Recreational goods and vehicles: The rising star of PCE on durables

Recent growth in real PCE on consumer durable goods has primarily been driven by recreational goods and vehicles, which contributed more than motor vehicles and parts. Between Q3 2009 and Q4 2015, real PCE on recreational goods and vehicles grew at an average SAAR of 10.1 percent, much higher the corresponding 5.5 percent growth for motor vehicles and parts.³ In fact, real spending on recreational goods and vehicles is now larger than real spending on motor vehicles, a stark contrast to 30 years back (figure 2).

Prices are a key reason behind changing patterns in PCE on durables

Although real PCE for recreational goods and motor vehicles has grown very quickly, consumers overall still spend more in nominal dollars for motor vehicles and parts (figure 3 and figure 4). The difference between the pictures of real spending and nominal spending is, of course, the prices of these two categories of consumer durable goods. Prices for recreational goods and vehicles have dropped over the years while that for motor vehicles and parts have risen (figure 5). For example, between Q1 1985 and Q4 2015, prices of recreational goods and vehicles fell an average 4.8 percent (SAAR) while that for motor vehicles and parts increased 1.3 percent.⁴ No wonder then that demand for recreational goods and vehicles has shot up over the years. Increasing nominal spending and falling prices have thus resulted in real PCE in this category rising above real spending for motor vehicles and parts—even when nominal spending for motor vehicles remains higher.

A closer look at subcategories

Video, audio, photographic, and information processing equipment and media (VAPIPE) accounts for the lion’s share of real PCE on recreational goods and vehicles (figure 6). If we compare the VAPIPE subcategory to new motor vehicles—which accounts for the largest share of real PCE on motor vehicles and parts—the role of prices becomes even more apparent (figure 7). Between 1985 and 2015, VAPIPE prices fell by an average of 8.7 percent a year while prices for new motor vehicles grew by 1.2 percent.⁵ That explains why prices for recreational goods have been falling. Consequently, by 2015, real PCE on VAPIPE was about 89 times the corresponding figure for 1985, and higher than the combined value for spending on new motor vehicles and net purchases of used motor vehicles.⁶

It is evident from this discussion that a marked change—if not a revolutionary one—is underway in consumer spending on durables. While consumers continue to spend on motor vehicles, the category is increasingly ceding ground to recreational products. Demand for these products has shot up over the years due to declining prices. Technological innovation has also helped. Many of these recreational products are now portable and have multiple uses, thereby increasing their lure among consumers. It will be interesting to observe spending trends over the next decade—although who knows, consumers might spring another surprise.