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Deciphering state’s personal consumption expenditures


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The good folks at the U.S. Bureau of Economic Analysis have come up with a new number, one we have never seen before. Now, for the first time, we have personal consumption expenditures (PCE) for states, which means we also have per capita PCE since we already have population figures for the states.

This revelation is like an astronomer discovering a new planet. It will cause many regional economists to rewrite and rerun their equations. Policymakers will ignore the figure for a while, as they do with anything new. Then they will announce goals for per capita PCE and tell us that number represents our collective well-being. It’s only a matter of time.

Before we have a chance to understand how these new numbers are put together, pundits will pronounce their significance and draw conclusions from them. Ah well, we might as well plunge into the fog and see how far we can get.

Personal consumption expenditures represent the spending of consumers on goods and services. Also included is the spending by nonprofit organizations for goods and services consumed by households. Thus, the wages of paid workers at a food bank would be included because that spending is for the benefit of the people who use the food bank.

In 2012, the latest year for which we have data, Indiana’s PCE totaled just under $212 billion or 1.9 percent of total PCE for the nation. In 1997, Indiana’s share was 2.1 percent. Without adjusting for inflation, this spending averaged 4.2 percent in annual growth, below the U.S. annual average of 4.7 percent.

When we look at Indiana’s per capita PCE growth, it was 3.5 percent (at an annual rate), compared with the nation’s 3.8 percent. During this period of time, the U.S. population grew faster than the Indiana population.

How did Hoosiers spend that $212 billion in 2012? Health care absorbed 18.4 percent of our spending, while taking only 16.6 percent nationally. We spent 14.9 percent on housing and utilities, whereas the country spent 18.1 percent on this category. A greater share of our spending (5.1 percent) went for gasoline and other energy products, compared to the nation’s outlays at 3.7 percent.

From these new numbers we will hear Indiana employers repeating the mantra that their low wages for Hoosier workers are justified by the lower cost of living in Indiana. The per capita PCE for Hoosiers in 2012 was $32,418 or 8.7 percent below the national average of $35,498.

As pointed out repeatedly in this column, our lower level of spending is most likely due to our lower wages rather than the other way around.

People can only spend what they have. What determines our earnings is the value of what we produce rather than where we live.

If we want to spend more, then we have to earn more. To earn more, the value of what we produce must be greater in the eyes of the world. Another call center will do little to increase our earnings and our spending.

Morton Marcus is an economist, writer and speaker who may be reached at mortonjmarcus@yahoo.com.

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