USA – What has happened on households’ consumption?

Households’ consumption has been particularly weak during the first five months of this year. I have already written on this issue (here, here and there) but the real question is to better understand consumption behavior. It is important for the US business cycle but also for the global economic momentum.
The observation is that during the first three-month of 2014, personal consumption expenditures were up by a mere 1% (annual rate) and that for the second quarter the carryover growth was just at 1.2% at the end of May. This is clearly weaker than what was seen in 2012 and 2013 (see the first chart here)
The four charts below show the level of Personal Consumption Expenditures and its quarterly average (carryover for Q2 2014) and its decomposition by types of expenditures.
USA-en-2014-May-PCE(click to enlarge the chart)
The North-West graph shows that the momentum in consumption is weaker since the beginning of this year. The step seen on the quarterly average is not as high as the previous ones.
For the first three months of this year, the level of durable and non durable goods dropped temorarely. This is consistent with climate hazard and can be seen on the North-East and the South-West graphs. To see the impact of the climate hazard on expenditures (specifically on Auto sales), the post by Atif Mian and Amir Sufi is relevant (see here).
For the most two recent months, the question is on services. We see on the South-East chart that the Q2 quarterly average is lower than that of the first quarter. Due to the scale of the chart, trends on services are important for the US economic outlook.
To be more precise on this sector, the graph below shows the decomposition of its monthly change by sub-sectors’ contribution.
The last two months are in negative territory and the main reason come from the sub-sector “Housing and Utilities” (red column)
USA-en-2014-may-PCE-serv-ContribIn the “Housing and Utilities” sub-sector, the weakness comes from “gas ans electricity”. Expenditures dropped for both types of energy. The graph below shows that “gas and electricity”  was the main driver of the “Housing and Utilities” sub-sector.
USA-en-2014-may-PCE-H&UtThis momentum in gas and electricity is not specific to April and May. This can be seen on the chart with its important volatility. The period could be longer we would also see this type of volatility.
The strong impact of gas and electricity on Services Expenditures’ contribution comes from the fact that other expenditures in the sector have been weak. There was not the usual compensation.
That’s this point we have to keep in mind while looking at the expected GDP profile. Consumption is 70% of GDP and the services sector more that 60% of the personal consumption expenditures (so around 40% of GDP).

The main reason for the weakness in consumption during the five first months of 2014 was expenditures in gas and electricity. But the profile of this latter sub-sector is not very different from what was seen in 2012 and 2013. Other expenditures were not strong enough to compensate. The chart below shows services’ expenditures excluding gas and electricity. We see that since the beginning of the year the momentum is low. That’s not necessarily good news for the US business cycle.

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