What are the characteristics of China and the US in terms of public consumption and household consumption in the first three quarters?

Government consumption is also public consumption (hereinafter referred to as public consumption). In the first three quarters of this year, U.S. household consumption was strong and public consumption shrank; China went the other way, with weak household consumption and tough public consumption. It can be seen that different economic structures and distribution systems have different impacts on resident consumption and public consumption.

Residential consumption in the United States is strong, public consumption is shrinking, and residential consumption supports the growth of US GDP

Although the Federal Reserve started raising interest rates in March and implemented a tightening monetary policy, it intends to increase borrowing costs to curb consumer demand and private investment. But from the actual results, the US dollar interest rate hike has a very obvious effect on curbing private investment. It has little effect on the consumption of American residents.

As can be seen from the above chart, the year-on-year increase in the comparable price of private investment in the United States has contracted very rapidly, from 10.7% in the first quarter, to 7.9% in the second quarter, and then to 1.5% in the third quarter. In terms of the quarter-on-quarter increase and decrease, total private investment in the third quarter fell by 8.5% quarter-on-quarter, continuing the 14.1% decline in the second quarter. This shows that the US dollar interest rate hike has a very obvious effect on curbing investment demand.

However, the year-on-year increase in comparable prices for U.S. household consumption contracted from 4.4% in the first quarter to 2.5% in the second quarter. Judging from the sharp decrease in the number of housing transactions in the United States since the U.S. dollar rate hike, the U.S. dollar rate hike may only have a greater impact on housing that requires a lot of credit support, and has little impact on small consumption of daily necessities and services. In the third quarter, U.S. residential sales fell 26.4% sequentially after falling 17.8% in the second quarter, reflecting a sharp slowdown in the housing market.

Public consumption in the United States will start in the third quarter of 2021, exiting the mode of fiscal expansion during the epidemic. In the third and fourth quarters of last year, the comparable prices of U.S. public consumption and investment decreased by 0.4% and 0.8% year-on-year, respectively. In the first and second quarters of this year, they also decreased by 0.6% and 1.3%, respectively. In the third quarter, they decreased by 0.4% in the same period last year. On the basis of the 0.8% reduction, the cumulative reduction was 1.2%.

In the first three quarters of this year, US household consumption accounted for 70.5% of GDP, while public consumption and investment only accounted for 17.1%. Strong household consumption underpins economic growth in the United States.

Our residents' consumption is seriously insufficient, and public consumption has become an important force for maintaining GDP growth

Due to our unique economic system and national income distribution system, in the national economic wealth created by workers, the distribution has always been inclined to the public finance, so that the public finance can be managed and invested in a coordinated manner. After the public finance has obtained a larger share of national income, the expenditure for investment is relatively large, resulting in correspondingly smaller transfer payments to residents.

From the perspective of household expenditure, the current price of household consumption in the first three quarters increased by 3.5% year-on-year. After deducting the price factor, the comparable price increased by only 1.5% year-on-year, which was only half of the GDP comparable price growth rate of 3%; the comparable price of US household consumption in the first three quarters It increased by 3.1% year-on-year, which was 0.7 percentage points higher than the GDP growth rate of 2.4% in comparable prices. In the first three quarters, China's comparable-price household consumption growth rate was less than half that of the US household consumption growth rate.

From the perspective of the proportion of household consumption in GDP, our household consumption accounted for only 29.4% of GDP in the first three quarters, which was only 42% of the 70.5% of US GDP.

This group can prove that U.S. household consumption drives GDP growth, while Chinese household consumption drags down economic growth.

However, our public consumption has strong resilience, which to a certain extent makes up for the lack of household consumption and has become an important force for maintaining GDP growth. In the first three quarters, China's public consumption (budget expenditure) increased by 6.2% (current prices) year-on-year, and comparable prices increased by 3.7% year-on-year, which was 2.5 times the growth rate of household consumption and 0.7 percentage points higher than the GDP growth rate.

Meanwhile, U.S. public consumption fell 0.9 percent year-on-year, 3.3 percentage points lower than U.S. GDP growth.

From the perspective of the proportion of public consumption in GDP, the proportion of US public consumption and investment in GDP in the first three quarters was 17.1%, while our public consumption alone accounted for 21.9% of GDP.

In the first three quarters, our GDP was 30% smaller than that of the United States, but public consumption reached RMB 19,038.9 billion, or about $2,882 billion, 13.2% more than that of the United States.

【Author: Xu Sanlang】