More Spending on Health Care Means Less on Clothing

(Bloomberg Businessweek) -- In 1929, $11.67 of every $100 that American consumers spent went to clothing and footwear. Apart from a sharp increase amid the shortages of World War II, that share has been falling pretty much ever since. In the first three quarters of 2019 only 2.8% of Americans’ consumer spending went to wearable things.

This decline has been driven by two main forces: rising incomes and falling relative prices. The former dominated early on; the latter has been more important lately. Apparel prices rose through the 1980s, but at a slower rate than overall inflation. Since the early ’90s, they’ve actually fallen as a result of cheaper overseas production and the rise of lower-cost sales channels such as Walmart. From its peak in 1993, the price of women’s apparel is down 23%; men’s apparel is down 10% after topping out in 1998.

Spending on food has seen a similar decline in pocket share, though that halted after 2000 as rising restaurant spending began to cancel out a continuing fall in spending on groceries. The share going to housing and utilities is a bit higher than it was in 1929, but together food, clothing, and shelter now account for only 35.2% of consumer spending, down from 53.7% in 1929.

What are we doing with all that extra money? Well, that’s the thing. We’re spending a little more on recreation and financial services. But the biggest increase by far has been in health spending, including spending on behalf of consumers by employers and the government. This money is buying us better care and a longer life span than Americans had in the 1920s and ’30s. But is it really worth $16.95 of every $100 we shell out? That’s not so clear.

● The Finer Things in Life

Americans’ spending on food to consume at home is down to only 7.1% of their total expenditures for the year so far—the lowest level ever. Spending at restaurants and hotels, meanwhile, has risen to 7% of total consumer expenditures and should pull ahead before long.

● Medical Bills

16.9% of U.S. GDP goes to health care, the world’s highest share. The Organization for Economic Cooperation and Development average is 8.8%.

● Sticker Shock

Spending on clothes and shoes is a much smaller share of U.S. consumer outlays than it once was, but it’s still a significant amount: $1,221 a year per person as of the third quarter of 2019.

● Behind the Wheel

Many more Americans have cars today than they did in 1929, but the share of consumer spending going to motor vehicles and parts has fallen from 4.3% to 3.6% over that time.
 

—Fox is a business columnist for Bloomberg Opinion

To contact the editor responsible for this story: Eric Gelman at egelman3@bloomberg.net, Jillian Goodman

©2019 Bloomberg L.P.