Finance 411: How to report on consumer markers in the U.S. economy

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By Paddy Hirsch

The Consumer Market dominates the U.S. economy. Roughly 70 percent of U.S. gross domestic product (GDP) is generated by consumer spending. So, it’s important for reporters covering the economy to have a good sense of how the American consumer is feeling and behaving.

So, who does have a sense? Apart from the consumers themselves, of course.

We can start with the government. It isn’t interested in how we feel. But it cares a lot about what we do. Because what we do governs the trajectory of the economy. So the government pays close attention to what we do when it comes to consumer spending.

Several departments are involved in this tracking activity.  The Census Bureau releases a monthly retail sales report, which monitors which goods are purchased in the U.S. The Bureau of Labor Statistics generates an annual Consumer Expenditure briefing, and the Bureau of Economic Analysis monitors consumer spending and releases a monthly report. The BEA also generates a quarterly report on GDP, which is a measure of the goods and services produced by the U.S. economy. Given that around 70 percent of those goods and services are generated by the consumer economy, GDP is a good indicator of consumer behavior.

All of these behavioral indicators give us a picture of what American consumers have done with their money. But these indicators are lagging, which means they rely on data that is several weeks to a month old by the time we see it. Which means they’re not even a reflection of the current economy.

So what about the present? And, indeed, the future? That’s where our feelings come in. And it’s where the government steps out of the picture. Feelings, it seems, are strictly for the private sector.

And for two organizations in particular: the University of Michigan has a Surveys of Consumers unit that tracks Consumer Sentiment and Consumer Expectations, and releases monthly updates on those metrics. Meanwhile, The Conference Board tracks Consumer Confidence and releases a monthly number for investors to chew on.

Both these indicators aim to estimate future spending and saving, and gauge expectations for inflation, stock prices, and interest rates. They are naturally speculative, because they involve projection into the future. They’re useful because they give us a sense of how people feel about the economy, their financial situations, and what they might do with their money.

But they don’t always track what the consumer actually does. Quite often consumers tell their interviewers that they are pessimistic about the economy, and that they plan to put off spending. The next month, however, the government releases data showing that consumers are spending like crazy. It goes the other way, too, sometimes. So reporters might consider being circumspect about these surveys, if not downright skeptical about what they actually mean for the economy.

All sorts of factors go into the way that consumers feel and act when it comes to spending. But perhaps the most significant is the most obvious: cost. So the consumer reporter would be well advised to keep a close eye on two of the most significant factors that govern costs: inflation and interest rates.

Inflation is the rate at which the price of goods and services increases. It’s monitored by the Bureau of Labor Statistics, which releases a monthly inflation report based on the Consumer Price Index. The report looks simple enough: it tells readers how much the index - which is based on the price of a basket of consumer goods - has risen or fallen over the past month. It’s important because the CPI provides the basis for annual cost of living adjustments to Social Security payments and other government-funded programs.

But the reporter should be aware of a few things about the index. For one thing, the basket is a somewhat random collection of goods: it doesn’t include everything we buy. It also doesn’t take into account the effect of substitution, whereby consumers may buy the same good but a cheaper brand. It can also take a while for a newly popular item to make its way into the basket, so the data produced by CPI is naturally skewed. Perhaps most significant for reporters in rural areas, the CPI is focused on urban consumers. This is natural, given that most Americans live in urban areas, but it means the data point may not reflect on the ground in parts of the country.

The BLS also monitors prices and inflation via several other indices: the Producer Price Index, which tracks costs in the production process, the Employment Cost Index, which measures inflation in the labor market, and the International Price Program, which monitors inflation for imports and exports.

The Bureau of Economic Analysis also tracks inflation by monitoring its own basket of goods via the Personal Consumption Expenditures Price Index, or PCE. The PCE  includes rural areas and some items in its basket that the CPI does not, such as the price of all medical goods and services purchased by employer-provided insurance and public programs such as Medicare.

All sorts of factors govern the cost of goods, from consumer demand to issues in the supply chain to bad weather. Perhaps the biggest factor, however, is the interest rate on debt. Most companies use debt to grow their business, and when interest rates rise, they pass the cost of that debt on to consumers … in the form of higher prices.

Moreover, most consumers have debts, and when the cost of that debt rises, so do their interest payments. That leaves consumers with less money to spend.

Interest rates, then, have an effect on both the cost of goods and the demand for them, which is why reporters focused on the consumer economy would be well advised to keep a close eye on the Federal Funds rate. This is the rate at which commercial banks lend to each other. It’s the lowest interest rate in the lending system, and every other interest rate in the economy is based on it, from the one-month treasury bill to the loan on your new GMC truck.

When you hear about the Federal Reserve’s base interest rate target, that’s the Federal Funds rate they’re talking about. The Fed uses various methods to keep the base rate at or near its target. How it actually does this is a whole other topic, but it’s important for reporters to know where the base rate is, and why, as it is the underpinning for one of the biggest factors in price movements in the economy. 

Additional resources: 

Advance Monthly Sales for Retail and Food Services

US Bureau of Labor Statistics ​​Consumer Expenditure Surveys

Patrick Hirsch is a Freelance Reporter for NPR. He can be reached at and their website is Finance 411 is a bi-monthly feature, presented by RTDNA and the National Endowment for Financial Education. Interested in becoming a contributor? Email for more information.