Henry looks at data from the Consumer Expenditure Survey, which divides up what people buy into various categories. He then classifies some of the categories as more likely to be disproportionately "necessities" and others as disproportionately "luxuries." for example, necessities include food at home, rent, utilities, health care, education, gasoline, and household supplies. Luxuries include food away from home, entertainment, household furnishings, "other lodging," and others. His complete list appears at the bottom of the post. This division is clearly rough and ready, but as Henry explains: "A specific type of good or service is classified as a luxury if more of it is consumed, on a percentage basis, as real income levels increase (that is, going from lower to higher income quintiles). Similarly, a specific good or service is classified as a necessity if it accounts for a smaller percentage of consumption as real income levels increase."
Back in 1984, household spending was more-or-less evenly divided between necessities and luxuries. Luxuries then rose as high as 58% of annual spending before the Great Recession hit, and have now fallen back to 56% of annual spending. Here's the pattern:
Many people, including me, have a tendency to feel that their hard-earned money should be spent on something fun, rather than having too much of it go to boring necessities like food and gas. One reason the pinch of the Great Recession has felt so severe, I think, is that people have been used to a world where over time they were able to spend more on luxuries. But that long-term trend halted during the Great Recession, and has not yet resumed.
Finally, here is Henry's overall list of consumption categories, categories by luxuries, necessities, and indeterminate.
Table 1. Average Share of Total Real Consumption, 1984-2012
|Consumption category||Income quintile|
|Food away from home||5.76||5.85||6.26||6.45||6.35||Luxury|
|Household furnishings, equipment||2.58||2.65||2.92||3.13||3.54||Luxury|
|Vehicles (net outlay)||1.72||2.33||2.77||3.33||3.77||Luxury|
|Personal insurance, pensions||2.32||4.73||7.86||10.72||13.92||Luxury|
|Other vehicle expenses||4.80||5.67||6.09||6.13||5.54||Luxury|
|Food at home||11.98||10.89||9.25||8.19||6.40||Necessity|
|Utilities, fuels, public services||11.59||10.39||8.95||7.60||5.97||Necessity|
|Tobacco, smoking products||2.53||2.24||1.92||1.50||0.82||Necessity|
|Gas and motor oil||4.89||5.21||5.27||4.87||3.72||Necessity|
|Apparel and services||3.58||3.45||3.46||3.43||3.58||Indeterminate|
Source: Bureau of Labor Statistics, Consumer Expenditure Surveys, 1984-2012.