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Meltdown 101: Is American consumer spending really the economic ...

by ASHLEY M. HEHER

There's power in our pocketbooks. But how much?

In the U.S., consumer spending — the amount of money we shell out on everything from hammers to homes — fuels our economy. At the end of the federal second quarter in late March, the government said "personal consumption expenditures" climbed to almost 70.7 percent of the nation's gross domestic product, a term for the value of everything produced by labor, plants and properties in the U.S.

Not everyone agrees with that figure, though. Some economists say defining consumer spending as the engine behind more than two-thirds of the U.S. economy is misleading math; they say government spending and other items should be factored out.

Here are some questions and answers about consumer spending and its impact the economy.

Q: What is consumer spending?

A: Personal consumption spending — what's commonly called consumer spending — is the dollar value of what's bought every day. It's on pace this year to be just short of $10 trillion.

Federal economists separate the data into dozens of categories, tracking spending on everything from tires and televisions to flowers, fuel and amusement park admission fees. But the figure also includes services like health care and insurance, along with rent and mortgage payments and even checking account fees.

Q: Why don't some people agree that consumer spending is 70 percent of the economy?

A: Critics note that the official consumer spending figure includes things that aren't paid out of our own pockets.

The biggest area of debate is health care spending, which in 2008 reached $1.56 trillion, according to the Bureau of Economic Analysis. That figure includes federal and state government spending on programs like Medicaid and Medicare.

Another federal agency — the Centers for Medicare & Medicaid Services — does its own analysis of the nation's health care spending, which it says was about $1.88 trillion in 2007, the last year for which they have data available. By CMS estimates, roughly 14 percent of medical costs were paid out of pocket in 2007 while nearly half was paid with public money from local, state and federal coffers. Much of the remainder is picked up by private health insurers and other private money.

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