By Ivaylo Petev, LSQ-CREST
and Luigi Pistaferri, Stanford University
The particular trauma of severe downturns is that declining consumer spending, itself a reaction to the economy's contraction, also undermines the prospects for recovery. Consumption is, in other words, a fundamental determinant of business cycles—a kind of litmus test of economic health. But it's not just an important determinant of future economic performance. We also look to consumption as an omnibus measure of the set of socioeconomic conditions that underlie consumer behavior, such as job opportunities, price fluctuations, access to credit, and financial security. In this recession brief, we offer an interpretation of recent consumption data in order to determine the extent of the economic damage and its unequal distribution across the American populace.