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Consumption: New Data and Old Puzzles

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  • Economics

Abstract

Consumption: New Data and Old Puzzles SAUL H. HYMANS The University of Michigan Consump ion: New Data and Old Puzzles THE RATE OF GROWTH of real consumption expenditures accelerated in the third quarter of 1968, precisely the quarter in which the 10 percent tax surcharge first became effective. This development contradicts the majority of the forecasts in existence at that time, and marks the end of the first Golden Age of modern forecasting. It is now well known that consumer spendinrg was virtually the only source of growth in the third quarter of 1968-indeed, real final sales, excluding consumption, rose by only $0.3 billion, while consumption jumped by $9.2 billion (1958 dollars). In the fourth quarter of 1968, while the rest of the domestic economy went on a spending spree, consumer expenditures actually fell in real terms. Sad to say, this did not mark the consumers' return to "normalcy." One quarter later, with real disposable income rising by a bare half-billon dollars under the load of retroactive surcharge liabilities, consumer spending jumped by more than $5/4 billion ( 1958 dollars). Those analysts who focus attention on the stability of the saving rate must surely have turned paranoid during the past few years. In point of fact no serious forecaster counts on any inherent stability in the saving rate. It is merely the residual item in a complex process of ex- penditure determination. It is precisely this process that economists have long attempted to measure. The important question-for both forecasting and policy analysis-is whether the recent behavior of consumer spending merely contains a few instances of "loud noise," or represents a whole new regime that economists are ill prepared to analyze. If the latter possibility 117 118 Saul H. Hymans is rejected, these instances of apparently aberrant behavior can be turned to advantage in identifying and applying important marginal alterations to a generally sound framework of analysis. Wit

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