Household Income, Demand, and Saving: Deriving Macro Data with Micro Data Concepts

Barry Cynamon and Steve Fazzari

Post Keynesian Conference

Kansas City, September, 2014

Acknowledgment

• Co-authored work with Barry Cynamon

• Thanks to the Institute for New Economic Thinking for generous financial support

Motivation – Part 1

• Demand effects of household sector

• Consumption drives much of the economy

• PCE vs. what households actually spend

• Prime example: residential construction vs. imputed rent on owner-occupied housing

Motivation – Part 2

• Disaggregation of household flows using household micro data• Example: recent work with Barry on rising inequality

and consumption

• Need disaggregated data

• Inconsistency between representative surveys and macro measures• Not just sampling error; important conceptual

differences

Objectives: Measure Actual Cash Flows

• Eliminate imputed value of services in consumption• Spending versus some concept of “utility”

• Eliminate spending not controlled by households• Example: Medicare

• Cash flow concept of disposable income• Flow of funds under household control

• Concept likely to correspond better with flows households report on surveys• Household financial flows the way households actually see

these flows

Key Identity

• Accounting identity maintained before and after adjustments:

Disposable Household Personal FinancialIncome = Consumption + Investment + Transfers + Saving

• Identity holds in NIPA• Household investment not distinguished from financial saving

• Adjustments to consumption or income require balancing change elsewhere

• HH Demand = Cons. + HH Investment

Housing Example (2011 $billions)

Disp. Income

Cons. HH Invest. Pers. Trans.

Fin.Saving

Implicit Rent -1236 -1236

Intermediate Inputs + 197 + 197

Mortgage Interest + 469 + 469

Depreciation + 209 + 209

New ConstructionSingle-Family Homes

+ 283 - 283

• Eliminate “rent home to yourself” business

• Effect on household demand:-1236 + 197 + 283 = -756

• Effect on disp. income = -361 (but transfer expenditure up by 469)

Other Important Categories

• About 40 (!) separate adjustments

• Remove “NPISH” sector

• Free financial services

• Medical care• Employer and government, not households

• “Other” demand

• Retirement accounting• Exclude payments by employers and government

• Include benefits from plans

SO WHAT?

Per Capita Personal Income NIPA (gray) –SCF (blue) –Our Adjusted Measure (red)

$10,000

$15,000

$20,000

$25,000

$30,000

$35,000

$40,000

$45,0001988

1991

1994

1997

2000

2003

2006

2009

Per Capita Personal OutlaysNIPA (gray) –PSID Cooper (blue) –Our Adjusted Measure (red)

$15,000

$17,000

$19,000

$21,000

$23,000

$25,000

$27,000

$29,000

$31,000

$33,000

$35,000

1984-1988 1989-1993 1994-1998 1999-2000 2001-2002 2003-2004 2005-2006 2007-2008 2009-2010

Demand-Disposable Income RatiosNIPA PCE / DPI (black) –Adj. Cons / Adj. DPI (gray) –Adj. HH Demand / Adj. DPI (red)

80%

82%

84%

86%

88%

90%

92%

94%

96%

98%

100%

1948

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

HH Demand to Adj DI NIPA PCE to NIPA DPI Adj Consumption to Adj DI

Outlays (with interest) to Disp. Income

80%

85%

90%

95%

100%

105%

110%

115%

120%

194

8

195

1

195

4

195

7

196

0

196

3

196

6

196

9

197

2

197

5

197

8

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

200

8

201

1

HH Demand to Adj DI NIPA PCE to NIPA DPI

Medical Spending Paid for by OthersRatios to Adjusted GDP

50%

55%

60%

65%

70%

75%1

94

8

195

1

195

4

195

7

196

0

196

3

196

6

196

9

197

2

197

5

197

8

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

200

8

201

1

NIPA PCE / GDP

(HH demand + non-HH healthcare) / adjusted GDP

HH demand / adjusted GDP

Different Saving Rates

-15%

-10%

-5%

0%

5%

10%

15%

194

8

195

1

195

4

195

7

196

0

196

3

196

6

196

9

197

2

197

5

197

8

198

1

198

4

198

7

199

0

199

3

199

6

199

9

200

2

200

5

200

8

201

1

NIPA saving rate adjusted gross saving rate adjusted financial saving rate