Commentators have been exclaiming over the decline in consumer spending in recent months. It’s true that spending in dollars is down, but an interesting fact has escaped attention: In November, the volume of consumption rose, despite a decline in spending. The reason is that prices fell. We used to talk about adjusting consumption and other components of GDP for inflation, but now we have to consider adjustments for price declines. The two pictures show durables and non-durables consumption, adjusted for price declines.
Consumption of durable goods, adjusted for price declines
Consumption of non-durables and services, adjusted for price declines
It’s way too early to say what this means. The December data will be helpful. We may get some grip on the question of how much of the drop in consumption was the reaction to the spike in oil prices during the summer and how much from the financial events of the fall.