For the first time ever, we now have a detailed picture of California consumers and how their expenditure patterns compare to consumers in the nation overall. This came about in the second half of 2014 when the U. S. Bureau of Economic Analysis (BEA), the same government agency that releases estimates for the nation’s gross domestic product, released prototype statistics for Personal Consumption Expenditures (PCE) in all 50 states.
The new information provides a much needed data source for consumer analysis and a snapshot of the cost of living in California relative to the rest of the country.
The findings for the state are stark. California is by far the largest contributor to consumer spending in the United States. In 2012, the most recent data available, total PCE in California was estimated to be $1.4 trillion, making up 12.7% of national PCE. Texas was second at $0.8 trillion. From 2011 to 2012 California PCE grew by 4.7%, outpacing growth nationwide (4.1%) and ranking 8th in growth out of the 50 states.
Analysis of the new PCE data shows that California households, on average, spend considerably more than households in the nation overall, and that the gap has grown larger over time. In 1997, the earliest data available, the average household in California spent 14% more than the average U.S. household. Fast forward to 2012 and that gap had risen to 23%.
One of the main reasons for the disparity is the difference between California and the nation when it comes to the cost of housing – and this is readily apparent in the new numbers released by the BEA. The state has been in the midst of a housing shortage for years now, due in large part to regulatory hurdles such as the California Environmental Quality Act (CEQA) and other legislation that constrains construction. The lack of supply pushes up prices and forces residents to commit more of their disposable income to housing. According to the real estate research firm DataQuick, the median price for an existing home in California was $388,000 in December 2014, nearly double the national median home price of $209,500, as reported by the National Association of Realtors.
According to the new PCE data California households, on average, spent upwards of $26,000 on housing and utilities in 2012, substantially higher than in the nation overall where the average household spent $16,500. Moreover, the difference in housing expenditures has increased over the years. In 1997 California households spent 50% more on housing and utilities than households in the nation overall, but by 2012 that percentage had increased to 58% more. At the price peak in 2005, California households were spending 68% more, on average, than households in the nation overall.
One particularly surprising result of our analysis regards California’s famous car culture. Contrary to popular perception, Californians actually spend less on automobile purchases and more on other transportation services relative to the nation overall. On average, in 2012 California households spent $3,200 per year on motor vehicle purchases and parts compared to $3,300 in the nation overall. California spending on transportation services (which consist of maintenance, rentals, public transportation, and air and water transportation)was $3,500 per household whereas U.S. spending was $2,600. Despite our car-loving reputation, the data indicates Californians actually spend less on average for motor vehicle purchases compared to the U.S. as a whole.
Categories in which Californians spend more of their money than Americans overall include health care, recreation, and restaurants and hotels. On average, in 2012, households in California spent 9%, 17%, and 31% more in these areas, respectively, than households in the U.S. as a whole. Given the extremely popular travel destinations within California, it is not surprising that residents in the state splurge more on travel and tourism related goods and services.
The new consumption data released by the BEA this past year is a truly important development, providing a much more detailed snapshot of consumer expenditure patterns than what was previously available. And while it has been common knowledge for some time that the cost of living in California is higher than in the rest of the nation, particularly when it comes to housing, this new data source has finally given us a sense of the magnitude of the differences. It is a critical tool for researchers, businesses, and policymakers in the Golden State and fills a major gap in the data available for empirical analysis.