In previous blogs I have discussed the fact that consumer spending is the engine of growth for the U.S. economy. This was highlighted again in the most recent estimate of U.S. economic growth as measured by Gross Domestic Product (GDP).
Today’s post examines what the sources of income are for the average American and where that income is being spent. The Bureau of Economic Analysis (BEA) releases details of personal income and personal spending each month and the data below comes from the BEA.
The average American has six major categories of income sources.
The following table shows what percent of income each of these categories comprise of total income. The table also shows the subcategories within the major categories to provide more information on what the income is.
| Category | Percent of Total Personal Income |
| Wages and salaries | 51.13% |
| Personal income receipt on assets | 13.99% |
| · Personal interest income | · 8.43% |
| · Personal dividend income | · 5.56% |
| Supplement to wages and salaries | 11.92% |
| · Employer contributions for employee pension and insurance |
· 8.25% |
| · Employer contributions for government social insurance |
· 3.67% |
| Government social benefits | 9.58% |
| · Social Security | · 5.64% |
| · Medicare | · 4.09% |
| · Medicaid | · 3.53% |
| · Veterans Benefits | · 0.63% |
| · Unemployment Insurance | · .20% |
| · Other | · 3.33% |
| · Minus personal contributions to government social insurance | · (7.83%) |
| Proprietor’s income | 8.98% |
| Rental income | 4.39% |
Clearly, wages and salaries are the primary source of income for most Americans. An important point to note is that not all income is spendable income. For many Americans, their interest income and dividend income may well reside in their 401(k) plan. That does not become available (without penalty) until you retire. A second component of income that is not immediately spendable is the “Supplement to Wages and Salaries” category. Contributions that employers make to pensions and social insurance help you when you retire, but it is not “money in your pockets” now.
The next question to answer is “how is that income being spent?” The following table provides a breakdown of the categories for personal outlays.
| Category | Percent of Total Personal Income |
| Personal consumption expenditures | 79.61% |
| · Goods | · 25.21% |
| · Services | · 54.40% |
| Taxes | 12.81% |
| Personal interest payments | 1.74% |
| Personal transfer payments | 1.17% |
| Savings | 4.67% |
Although this information gives us a broad understanding of where personal income is going, it does not provide much insight into the specifics. The BEA does provide a better breakdown of personal consumption expenditures as part of their GDP report. Although the time frames are different (quarterly for GDP, monthly for Personal Income and Spending) the GDP report does provide more specific information on personal spending. The following table provides a breakdown of the subcomponents of personal spending.
| Category of Personal Consumption Expenditures | Percent of Personal Consumption Expenditures |
| GOODS | |
| Food and beverages purchased for off-premise consumption |
7.16% |
| Recreational goods and services | 4.91% |
| Motor vehicles and parts | 3.49% |
| Clothing and footwear | 3.16% |
| Furnishings and durable household equipment | 3.13% |
| Gasoline and other energy goods | 2.54% |
| Other nondurable goods | 8.82% |
| Other durable goods | 1.80% |
| SERVICES | |
| Housing and utilities | 17.43% |
| Health care | 16.75% |
| Financial services and insurance | 6.49% |
| Food services and accommodations | 6.27% |
| Recreation services | 3.89% |
| Transportation services | 3.11% |
| Consumption expenditures of non-profits serving households | 2.22% |
| Other services | 8.83% |
What becomes clear when analyzing how personal income is being used is that the average American is spending more of their income on things that they have to buy (or pay for) rather than things that they want to buy. Housing & Utility, Health Care and Taxes are the three biggest expense categories that consume income.
Until we see larger gains in wages and salaries, this situation will most likely persist and continue to challenge the Goods Producing side of the economy with slow growth.
Now for your Mother’s Day trivia (Mother’s Day is quickly approaching!).
According to the website Statistics Brain the following are the major categories for what mom wants to receive for Mother’s Day. The percentages will not add to 100% because respondents chose more than one item.
| What Mom Wants | Percent |
| Something Homemade | 36.0% |
| Dinner | 34.8% |
| Greeting Card | 31.5% |
| Gift Card | 24.7% |
| Flowers | 22.5% |
| Jewelry | 11.2% |
| Books | 10.1% |
| Spa | 7.9% |
| Clothing | 5.6% |
| Music | 5.6% |
| Travel | 4.5% |
| Electronics | 3.4% |
A separate survey from the website Fundivo shows what people actually buy their Mothers. Again, the numbers do not sum to 100%.
| What You Actually Bought Mom | Percent |
| Greeting Cards | 80% |
| Flowers | 67% |
| Special Outing | 54% |
| Gift Cards | 44% |
| Clothing | 36% |
| Jewelry | 34% |
| Personal Service | 21% |
| Books or CDs | 20% |
| Houseware | 19% |
| Electronics | 14% |
Apparently, we are all not making enough homemade items for our mothers! Speaking from personal experience, the true “most wanted” item from your mother is a phone call or a personal visit. You can buy her the greatest present ever, but if you forget to call or stop in to see her, you will hear about that far longer than her praise for the present!
Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.
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