American Budgets Have More to Spare for Cars, Home Than in 1955

Feb. 21 (Bloomberg) -- Even in the midst of what may become the worst recession in the postwar era, Americans still have the means to enjoy more luxuries than their parents or grandparents did a half-century ago -- for now.

Necessities like food and clothing take a much smaller share of household budgets, with plenty left over to pay for bigger homes, second or third cars and higher levels of education than families could afford back then.

That has allowed U.S. families to devote 43 percent of their budgets to housing -- including rent, furnishings, utilities and even hotel stays -- according to weightings used by the Bureau of Labor Statistics to calculate the consumer price index. The comparable share in 1955, when Dwight D. Eisenhower was president and the rate of inflation was last as low as today, was 33 percent.

Consumer prices were unchanged in January from a year earlier, the first time they haven’t increased on a 12-month basis since 1955, Labor reported yesterday in Washington. Americans today devote 15.8 percent of their budgets to food and beverages, down from 28.6 percent 54 years ago, and spend 3.7 percent on clothing, down from 9.8 percent.

“It shows how much discretionary income has been generated,” said Donald Ratajczak, chief consulting economist at Morgan Keegan & Co. in Atlanta, and a former director of the Economic Forecasting Center at Georgia State University where he won acclaim for his inflation forecasts in the 1990s. “A lot of that has gone into housing and cars as we wanted bigger and bigger homes and more car.”

“Back then you had to spend a quarter of your income to feed your family, and now it’s about a sixth,” he said.

More Necessities?

As home ownership surged in the postwar period and more Americans achieved higher education levels and better paying jobs, households were able to divert more of their spending to less essential items. Now, with the economy mired in a recession since December 2007, Americans may once again have to allocate more of their spending to necessities, said Ratajczak.

Transportation expenses, including cars, maintenance, fuel and public transport, account for 15.3 percent of household budgets, up from 11.1 percent in 1955, according to Labor’s data.

Education and communications, which didn’t even exist as a separate, major category a half century ago, accounts for 6.3 percent of family budgets today. Those expenditures include tuition and books, as well as spending on information processing, such as computers and telephone services.

Telephone service, which until 1998 was included in housing because of the fixed land lines, was moved to the new education and communications category as more and more people use mobile phones, the Labor Department said.

Other expenses have remained more constant over time. Americans spend 7.6 percent on energy today compared with 6 percent in 1955. Medical care takes up 6.4 percent of family budgets, up from 5.2 percent.

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net