So I found this
There seems to be a pretty tight correlation between retail sales as a fraction of disposable personal income (left axis) and the average weekly hours worked (right axis).
In the long run they are both declining, of course, but its not immediately clear why they should be declining at proportional rates. Over the business cycle it makes sense if there is causation running from consumption to hours work. People try to save more and additional savings leads to less work.
It makes less sense if the correlation is running from optimal hours worked to spending. In that case we would expect consumption to fall during downturns, people are choosing less work which leads to less income which leads to less consumption. However, consumption smoothing would suggest that consumption as a fraction of income should rise. In this graph our proxies for consumption spending as a fraction of income falls.
Now it could be that consumption is smoothed through non-retail channels: health care, service streams from existing housing and durables, etc. I am not sure, however, that when all the i’s are dotted and t’s crossed that this is theoretically consistent.
Here are the correlations
and the first difference
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Saturday ~ September 5th, 2009 at 8:43 am
odograph
I retired, or semi-retired, early. I cut my hours, and cut my spending. Am I typical of some demographic?
Sunday ~ September 6th, 2009 at 2:43 pm
RickRussellTX
Odograph, you cut your hours and your spending, but did you cut your spending *expressed as a fraction of your disposable income*?
From a theoretical standpoint, you might expect that hours go down, income goes down, and disposable income goes down. Yet our need for retail purchases does not necessarily go down — we still must buy food and diapers and gasoline.
I guess the original poster is wondering why the two graphs track each other so closely. Even if a consumer tightens their belt and reduces spending, they’ve still got those necessary purchases to make. You’d expect that retail spending would eventually hit a floor, and the ratio of spending to income would start going up as income goes down.
Yet it appears that retail spending as a fraction of disposable income keeps going down.
For myself, I’m shocked that the average work week has dropped to 33 hours. We’re truly turning into the society envisioned by Joe Haldeman in _The Forever War_: a small population of illiquid “full timers” and a vast population of highly liquid part-timers, contractors, the “self-employed”, etc.
Sunday ~ September 6th, 2009 at 6:41 pm
odograph
Got it, I missed that the decrease was expressed as a fraction …
FWIW, the other thing that was strange to me was that when I set my own hours, for a semi-retirement contract, that I kept hitting 32 or 33 hours per week. To see that number pop up as a national average was a curious coincidence.
Wednesday ~ September 9th, 2009 at 5:47 pm
Apex
I am not so sure it is all that strange. Given that people are (or have been) spending 100+% of their DI. And given that non-retail sales things tend to be fairly fixed (house payment/rent, medical cost/ins, utilities, etc.), it would seem the only place left to squeeze a reduction is from retail sales. Every less hour you work is less money you have to spend and thus you have to decrease your retail sales purchases nearly exclusively (or do some drastic action to reduced a less adjustable cost).
So for example. If you have $100 of DI and $40 of it is retail spending you are spending 40% on retail sales. If you decrease your income to $95 and most of that comes from retail sales (which in the short run seems reasonable) you will decrease your retail spending to $35-36 depending on if you have any wiggle room at all in non retail areas. That is 37-38% of your spending now going to retail sales.
I actually don’t see how it could be any other way in the short term.
Wednesday ~ September 9th, 2009 at 5:52 pm
Apex
And now that I post that I see the graph is not short term. Silly me. So while I think my argument is valid it doesn’t seem to apply here.
For this trend it would seem to validate the idea of higher inflation in non-retail items such as housing, medical, education, etc. Those things just take up more of the budget now.
Why it seems to track with an overall 50 year trend of reduced hours is a bit strange, maybe a strange coincidence where the short term reasons make it follow the gyrations of the chart and the overall trends just happen to be on a similar sloped trajectory.