by Willem Van Zandweghe and John Carter Brazxton – The Macro Bulletin, Federal Reserve Bank of Kansas City
In the first four years of current recovery, real GDP increased only slightly more than half as much as might be predicted based on average real GDP growth following the recessions of 1981-82, 1990-91, and 2001. An important driver of GDP growth, consumer spending has been similarly subdued in the current recovery. Consumer purchases of durable goods – including housing, household goods, vehicles and recreational goods- are a type of spending particularly sensitive to interest rates. When lowered interest rates spur a rise in durable goods purchases, the increased spending can contribute to a revival of GDP growth.
But in the current recovery, real durable goods spending has rebounded more gradually than in previous recoveries on average. The chart below divides durable goods spending into residential investment, recreational goods, such as consumer electronics, house hold goods, such as furniture and appliances, and motor vehicles. The top panel of the chart compares average growth in the 1981-82, 1990-91 and 2001 recoveries ( black bars) with growth in the current recovery (blue bars) – in each recovery considering the four-year period following the business cycle trough. Residential investment in the current recession has increased less than 30 percent over four years, compared with its vigorous rebound of more than 50 percent on average in the previous recoveries. In the current recovery, the rebound in spending on recreational goods and on household durables has also been slower. Motor vehicles spending initially lagged behind previous recoveries, but after four years has caught up.
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source: http://kansascityfed.org/publicat/research/macrobulletins/mb13VanZandweghe-Braxton1119.pdf
