Measuring Consumption: The Post-1973 Slowdown and the Research Issues

July 2, 1997

What happened to U.S. economic growth after 1973? Before 1973, productivity, real compensation, and real per capita consumption all showed strong annual growth. After 1973, growth diminished in all three measures. The post-1973 retardation in U.S. productivity growth has been a research topic for nearly 20 years but more recently attention has turned to the reduction in the growth rate of real earnings that began about the same time. The growth rate of U.S. real per capita consumption also abruptly slowed after 1973. All three reductions in economic growth rates ? productivity, real earnings, real per capita consumption ? tell a superficially consistent story, up to a point. However, data problems ? defects in measurement ? play a very prominent role in the research agendas on productivity and real earnings. This paper takes a critical look at the data on real per capita consumption as well as the components of real per capita consumption. The paper first reviews the slowdown in consumption growth rates, and then turn to the measures of current-dollar consumption expenditures ? the numerator of the real consumption ratio. It subsequently discusses the price statistics used for deflation, with particular attention to the report of the CPI Commission (1996).