Vampire Meme: Consumer Spending is 70% of Economic Activity–NOT!

With the holiday shopping season, we’ve seen a revival of the confident but completely wrong assertion:  ”Consumer spending is 70% of U.S. economic activity.”  No matter how many times I stab this vampire meme in the heart, it just keeps getting back up again. There are two reasons why it’s simply not true that consumer spending is 70% of economic activity:

  • Consumer spending, especially this time of year,  includes a lot of imported goods. So when you buy a toy, a shirt or a big screen TV, just flip it over and look at the label– your money flows out of the country to stimulate economic activity in China, or Korea, or Mexico.
  • The government’s definition of consumer spending includes Medicare, Medicaid,  and money spent by nonprofits such as political parties and religious groups.

So when you see  pictures of Americans buying toys, clothing, and consumer electronics, think about happy workers around the world. U.S. consumers drive global economic activity.

For some of my other posts on the subject, see here and here.

Hall of Shame–news organizations who got it wrong.

For at least 15 years, 70 percent of economic activity in the U.S. has come from consumer spending. Atlanta Journal Constitution

The surge pushed stocks to a new two-year high, as retailers, economists and investors, while cautious, were encouraged that consumers—who account for 70% of the U.S. economy—are again opening their wallets. Wall Street Journal

Consumer spending accounts for 70 percent of economic activity. Associated Press

Retail sales are closely watched as a measure of consumer spending, which accounts for about 70 per cent of economic activity. Financial Times

About Michael Mandel 127 Articles

Michael Mandel was BusinessWeek's chief economist from 1989-2009, where he helped direct the magazine's coverage of the domestic and global economies.

Since joining BusinessWeek in 1989, he has received multiple awards for his work, including being honored as one of the 100 top U.S. business journalists of the 20th century for his coverage of the New Economy. In 2006 Mandel was named "Best Economic Journalist" by the World Leadership Forum.

Mandel is the author of several books, including Rational Exuberance, The Coming Internet Depression, and The High Risk Society.

Mandel holds a Ph.D. in economics from Harvard University.

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