Discretionary Services: One More New Normal Bad Data Set

July 6th, 2011
in econ_news

Econintersect:  Is the lower people count at Disney World a harbinger of deeper economic difficulties?  Theme park visits and skipping visits to your favorite restaurant are part of a discretionary category of personal expenditures - money that consumers do not need to spend.

The BLS defines discretionary spending as entertainment, food away from home, and other expenditures including alcoholic beverages and personal care products and services.  A NY Fed study concludes:

Follow up:

........the fact that discretionary services expenditures remain significantly below their previous peaks is of concern for the overall economic outlook. Although these expenditures can be deferred in instances of temporary income drops, the sluggish recovery in these expenditures suggests, consistent with the permanent income/life cycle hypothesis, that households may perceive more persistent shocks to their overall wealth. For example, homeowners may expect house prices to recover only slowly at best, and thus the decline in housing wealth to be more persistent. Also, households may remain wary about their employment and income prospects, suggesting that they may have lowered their future income expectations. Accordingly, the continued sluggishness of discretionary service expenditures at this point in the expansion lends a note of caution regarding the recently improved economic growth outlook.

This can be optically verified by a graphic included in the study.

source: NY Fed

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