At Slate, Matt Yglesias rebuts the claim that the weak recovery is driven by slow consumer demand by producing this Federal Reserve Economic Data chart (left), showing that personal consumption expenditures have outperformed the rest of the private economy since late 2007.
The big laggards are residential fixed investment (homes) and non-residential fixed investment, which Yglesias notes reflects mostly weakness in commercial real estate development. “Basically we're not building malls and offices,” he writes.
But isn’t this what the FRED chart should look like? The economic crash was caused in large part by a credit bubble that had led to overinvestment in real estate. I don’t look at the still-empty Xanadu mega-mall in the Meadowlands and say to myself, "I really wish we were building more malls."
What we should be seeing after the real estate crash is a structural shift in the economy where we build fewer buildings until we actually need all the space we already have -- and spend more money on gadgets, services, floor coverings or whatever you like instead.
That is, PCE ought to be outperforming real estate. What this chart doesn't tell us is whether it is outperforming it by enough. Yglesias writes that people are still buying iPhones and pants, despite the weak economy. This chart leaves open the option that they should be buying more.