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Consumer expenditures in 2023

By Shane Meyers, Geoffrey D. Paulin, and Kristen Thiel

As 2023 began, concerns lingered over whether consumers would continue to face the highest inflation rate in over 40 years. Although the persistent effects of inflation did not subside, inflation in 2023 did not reach the same heights as observed in 2022. However, prices still grew by 4.1 percent, more than twice the Federal Reserve’s target inflation rate of 2.0 percent.¹ As consumers assessed their economic wants and needs, how did their spending habits change in 2023?

This report analyzes integrated data from the Diary and Interview Survey components of the Consumer Expenditure Surveys (CE). (For details about these components, including how their results are integrated in publication, see the “Additional Information” section of the 2023 CE news release.) The data in this report are drawn from a collection of CE tables, highlighting the vast array of demographic data the U.S. Bureau of Labor Statistics (BLS) has available for use. Income and expenditure data shown in the tables throughout this report are expressed as nominal values, representing spending in U.S. dollars as reported by surveyed consumers.² These data are collected by the U.S. Census Bureau under contract with BLS. BLS then publishes the data in specific categories, usually defined by characteristics of the reference person for a given consumer unit (CU).³

Each year since 2020 has posed unique challenges for consumers, as the economy experienced the shock of the COVID-19 pandemic and the constraints of decades-high inflation. The next section details the economic conditions that influenced spending patterns, shares, and dynamics in 2023.

Inflationary pressure persisted in 2023

Prices rose by an average of 4.1 percent from 2022 to 2023, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), compared with an average of 8.0 percent from 2021 to 2022. In 2023, the 12-month percent change of inflation decelerated from 6.4 percent in January to 3.0 percent in June, before varying little and averaging 3.4 percent from July to December. Although over-the-year price increases in 2023 were less than those in 2022 (which ranged from 6.5 percent in December to 9.1 percent in June), the increases in 2023 exacerbated inflationary pressure that consumers were already facing.

CUs continued to face the impacts of inflation, as shown by price trends for key expenditures, although some expenditures experienced modest price relief. For example, food away from home prices rose an additional 7.1 percent in 2023, after increasing 7.7 percent in 2022. Prices in 2023 also rose 17.4 percent for vehicle insurance, 7.5 percent for housing, and 5.8 percent for electricity. Used car and truck prices fell 7.1 percent in 2023, following a 12.7-percent increase in 2022. New car and truck price increases rose an additional 3.7 percent in 2023, after increasing 10.4 percent in 2022.

To examine how inflation affected the average household, consider CUs spent an average of 5.9 percent more on goods and services in 2023 than in 2022. This percentage represents the average change in nominal spending that CUs provided in exchange for their desired bundle of goods and services. As previously stated, the average annual rate of inflation was 4.1 percent in 2023. Real spending growth, or the difference between the nominal spending rate and the inflation rate, would be 1.8 percent (5.9 percent minus 4.1 percent).

In 2022, supply chain constraints tied to a shortage of 78,000 truck drivers, higher freight costs, depleted inventories, and other labor shortages continued but began to subside.⁴ In 2023, these constraints continued to fade and shifted to being primarily caused by shortages in raw materials.⁵

Expenditure trends by major category: 2020 to 2023

Table A displays average annual expenditures (in nominal dollars) and associated percentage changes from 2020 to 2023. Average annual expenditures rose 5.9 percent in 2023, rising over $4,300 from 2022 spending levels, to $77,280 in 2023. This follows a 9.0-percent increase in 2022 and a 9.1-percent increase in 2021, which occurred amid the impacts of the COVID-19 pandemic and decades-high inflation. As the growth rate in inflation decelerated and consumers’ pent-up demand waned in 2023, the growth in average annual expenditures decelerated. Despite the slowdown in inflation, average annual expenditures in 2023 were $15,946 higher than in 2020. In contrast to the growth rate in inflation, income growth continued to accelerate. Income before taxes has shown continued growth since 2020 and grew 8.3 percent in 2023.⁶

In 2023, spending increased in 11 of the 14 major expenditure categories. (See table A and chart 1.) Spending increased in the five largest expenditure categories: housing, transportation, food, personal insurance and pensions, and healthcare. Two categories experienced expenditure declines: cash contributions and tobacco products and smoking supplies, both of which reversed course after seeing spending gains in the last 3 years. Reading expenditures were unchanged from 2022 spending levels.

Among the expenditure categories that experienced a notable increase was education. Education spending continued to increase in 2023, climbing 24.0 percent (or $321) to $1,656. This follows an 8.9-percent increase in education spending in 2022. The majority of the 2023 increase can be attributed to higher spending on various forms of tuition. Expenditures on college and high school tuition rose 7.1 and 39.2 percent, respectively. According to College Board, price changes are driving tuition increases. Prices for in-state public 4-year colleges, out-of-state public 4-year colleges, and private nonprofit 4-year colleges rose 2.5, 3.0, and 4.0 percent, respectively.⁷ Even if college acceptance rates remained constant, upward price pressure would have inflated college tuition expenditures. This upward trend in expenditures is supported by a 0.6-percentage point increase in percent reporting (from 4.12 in 2022 to 4.73 percent in 2023).⁸ Prices have increased in elementary and high school tuition as well; according to CPI-U data, prices have risen an average 3.7 percent over the last 2 years (3.0 percent in 2022 and 4.4 percent in 2023).

Transportation spending rose 7.1 percent in 2023, after a 12.2-percent increase in 2022. Two specific subcategories drove the 2023 increase; the first was vehicle purchases (23.2 percent). One major factor that contributed to this jump was the increase in supply of new and used automobiles on dealership lots, which had not been a characteristic of the last 3 years. New car inventory reached a 2-year high of 1.96 million units for sale in May 2023 and surpassed 2.56 million units, with average prices remaining elevated at $47,456, in December 2023.⁹ An increased supply of new cars and trucks on dealership lots likely incentivized automobile dealers to mark down prices and move units quickly. Such price reductions would have reduced the quantity supplied and increased the quantity demanded of new cars and trucks. As a result, spending on new cars and trucks rose 31.9 percent (18.6 percent for new cars and 38.6 percent for new trucks) in 2023. In addition to vehicle purchases, spending on public and other transportation (29.7 percent) contributed to the high spending in the transportation category. This increase can be attributed to more workers returning to the office in major metropolitan areas.¹⁰ CUs spent an average of $1,096 in 2023, the first time that spending on public and other transportation topped $1,000. This 29.7-percent increase represents a slowdown from increases of 71.9 percent and 86.9 percent, respectively, in 2021 and 2022, when more workers returned to the office following increased telework during the COVID-19 pandemic.¹¹ Spending growth was broad in this subcategory, but the increases in taxi fares and limousine services (65.2 percent), intracity mass transit (36.8 percent), and airfares (13.9 percent) contributed the most to the increase.

Food spending also rose for the third consecutive year, increasing 6.9 percent. Food at home expenditures, which includes spending at grocery stores and similar retailers, rose 6.1 percent. In previous years, most spending gains for food at home came from proteins (meat, poultry, fish, and eggs) and produce (fresh fruits and vegetables). In 2023, spending in these areas declined by 4.3 and 10.1 percent, respectively. Prices only increased by 1.8 and 2.5 percent, respectively, so this decline in expenditures was likely due to a drop in quantities purchased. Instead, CUs focused their spending on cereals and bakery products, as well as other food at home, which includes frozen, canned, and processed food.

Food away from home includes spending at restaurants, takeout, and all other meals not prepared in one’s home. In 2023, food away from home expenditures increased by 8.1 percent, or an additional $294 from 2022. With the impacts of the COVID-19 pandemic subsiding, it is likely that most spending gains were driven by further price increases and menu cost adjustments passed along to the consumer. Percent reporting for food away from home also rose by about 2.5 percentage points in 2023, indicating a greater quantity of CUs dining out at restaurants. CPI-U data reinforces this, showing a 7.1-percent increase in food away from home prices in 2023.

Housing, the expenditure category that continues to make up the largest share of consumer spending, increased 4.7 percent in 2023. Like 2022, upward pressure on home prices, high rent for apartments, and increasing mortgage rates continued to cause rising housing expenditures. Spending on owned and rented dwellings rose by 5.7 and 7.6 percent, respectively. For owned dwellings, the Federal Reserve’s continued efforts to curb inflation resulted in an elevated interest rate environment for homeowners.¹² Mortgage interest and principal payments are essential components of housing costs. According to the Federal Reserve Bank of St. Louis, the average rate for a 30-year fixed rate mortgage was 7.3 percent in the fourth quarter of 2023—the highest the rate has been since the fourth quarter of 2000.¹³ Persistently high mortgage rates not only continued to elevate the cost of owning a home but likely caused some consumers to wait to enter the housing market. This is evidenced by CE’s homeownership rate remaining at 65 percent for a third consecutive year. With the percentage rate of homeowners and renters unchanged, any increase in rental rates or shelter prices would drive up housing expenditures. High median home prices compounded this issue for a second consecutive year. The median home price in the fourth quarter of 2023 was $423,200, down from the 2022 high of $442,600 and closer to the 2021 value of $414,000.¹⁴ Elsewhere in housing expenditures, spending on other lodging (e.g., hotels, college dorms, etc.) increased 11.1 percent and household operations increased 7.4 percent. Utilities expenditures only rose 1.7 percent, compared with large jumps in 2022.

Healthcare expenditures grew 5.3 percent and returned to prepandemic levels in 2023, while slowing down from 2022 spending levels. The 2023 increase was due to a 27.8-percent rise in spending on medical supplies.

Spending on cash contributions declined 13.7 percent in 2023, as consumers contributed less to churches and other religious institutions, as well as political organizations. Entertainment expenditures rebounded from a 3.1-percent decline in 2022, increasing by 5.1 percent in 2023. Spending on personal care products and services and personal insurance and pensions increased by 9.7 and 9.3 percent, respectively, in 2023. The tobacco products and smoking supplies category experienced a decline of 0.3 percent, while reading expenditures were unchanged. Four of the remaining five major expenditure categories grew by a single-digit rate. The last category—miscellaneous—grew 17.3 percent, mostly due to a 63.5-percent increase in legal fees.¹⁵

Expenditure shares: how did consumers divide up their spending?

The concept of expenditure shares is critical to understanding short and long run spending trends and to recognizing changing consumer preferences and priorities. In the short run, expenditure shares provide insight into the complex decisions that the average consumer faces in allocating their paycheck to food, gasoline, rent, public transportation, and other expenses. In the long run, expenditure shares instead reflect adjustments in living standards. For example, CUs that spend lower shares on the primary expenditure categories of food, transportation, housing, and healthcare can allocate larger shares to discretionary goods and services that are not as affordable to those on tight budgets.

As noted previously, housing continued to comprise the largest share of consumer spending, although the share has declined each year since 2020. In 2020, housing expenditures accounted for almost 35 cents of every dollar spent by a typical CU. During the pandemic, individuals reduced leisure spending outside the home either by policy constraint or by choice, converted their homes for maximum telework postures, and embarked on lengthy remodeling projects.¹⁶ In 2023, the typical CU spent 32.9 cents of every dollar on housing, signaling a return to 2019 levels. (See table B and chart 2.)

Of the 14 major expenditure categories, the top 5 categories of housing, transportation, food, personal insurance and pensions, and healthcare accounted for 83.2 cents of every dollar spent in 2023. The next three highest categories of entertainment, cash contributions, and apparel and services accounted for 10.4 cents of every dollar spent. For this analysis, chart 2 combines the remaining six smallest expenditure categories into an all other expenditures category.¹⁷ This category includes personal care products and services, alcoholic beverages, reading, education, tobacco products and smoking supplies, and miscellaneous expenditures. These six categories account for the remaining 6.4 cents of every dollar spent by CUs.

Trends in expenditure share allocation from 2022 to 2023 were mixed. Seven major expenditure categories rose, three remained unchanged, and four declined from their 2022 levels. As shown in table B and chart 2, consumers spent larger shares on transportation, food, personal insurance and pensions, education, and miscellaneous expenditures, all rising between 0.1 and 0.4 percentage points. Transportation expenditure shares rose by 0.2 percentage points (17.0 cents of every dollar spent), driven by an increase of 1.0 percentage point in vehicle purchases. The increase in personal insurance and pensions (0.4 percentage points) can be attributed to an increase of 0.4 percentage points in pensions and Social Security spending.

Expenditure shares of housing, apparel and services, cash contributions, and tobacco products and smoking supplies declined between 0.01 percentage points and 0.7 percentage points in 2023. Housing shares declined by 0.4 percentage points due to a decline in utilities, fuels, and public services. This follows a 0.5-percentage-point decline in housing shares in 2022 stemming from a decline in household furnishings and equipment. Despite these declines, CUs still allocated the largest share of their budget to housing. Expenditure shares of healthcare (8.0 percent), entertainment (4.7 percent), and alcoholic beverages (0.8 percent) remained unchanged from 2022 to 2023. The share of the all other expenditures category grew from 5.9 percent in 2022 to 6.4 percent in 2023.

Income and expenditure dynamics by income quintile

Historically, income is a leading indicator of spending patterns.¹⁸ Those in the higher income quintiles, on average, spend more on most goods and services than those in lower income quintiles.¹⁹ As prices continued to increase at diminishing rates in 2023, the purchasing power of consumers across all incomes was affected. However, average income continued to increase in the face of inflationary pressure. This section analyzes how various income groups adjusted their spending habits to the changing economic landscape.

Similar to 2022, gains in nominal (non-inflation-adjusted) income were observed regardless of income quintile. In 2023, gains ranged from 7.3 percent for the fourth quintile to 9.9 percent for the lowest quintile. (See table C and chart 3.) The 9.9-percent increase for the second consecutive year for the lowest quintile can be tied to an increase in wage and salary income (14.4 percent), along with an 8.7-percent increase in cost-of-living adjustments (COLA) for Social Security payments in 2023.²⁰ Compared with the CPI-U increase for 2023 (4.1 percent), it is clear that all income quintiles experienced real (inflation-adjusted) income gains.

Total expenditures for all five income quintiles rose in 2023; those in the second quintile observed a 2.7-percent increase in spending, while those in the highest and fourth quintiles spent 6.7 and 7.3 percent more, respectively.²¹ In 2023, CUs in the second quintile spent 40 percent less on cash contributions than in 2022, pulling down this quintile’s aggregate value.²² The primary drivers behind the $5,965 jump in expenditures among the fourth quintile were the 8.1-percent increase in transportation spending and the 6.6-percent increase in housing expenditures. These two increases alone accounted for 48.8 percent ($2,931 out of $5,965) of the increase in total expenditures for the fourth quintile from the previous year. Transportation and housing also heavily influenced spending increases for the highest quintile, along with education. CUs in the highest quintile spent almost 30 percent more on education, accounting for 11.5 percent of the highest quintile’s increase ($1,088 out of $9,439).

Analysis of spending on key categories: food, housing, utilities, vehicles, and gas

The following section analyzes trends in several expenditures at a more granular level that are vital to the average CU, while highlighting the broad research potential of CE demographic data. Topics covered in this section include expenditures on food at and away from home, rent and mortgage spending, utilities spending by selected metropolitan statistical areas (MSAs), new and used automobile expenditures, and gasoline spending.

Dining out or cooking at home: how did consumers spend food dollars?

Recent economic shocks have affected all aspects of consumer life, including the most basic: how and when consumers purchase food. This section examines changing patterns for both food at home (i.e., food from grocery stores, farmers’ markets, and similar venues) and food away from home (i.e., food at restaurants, food trucks, employer- or school-based cafeterias, and even vending machines).

Both expenditure levels for food at and away from home, as well as the allocation of food dollars, changed dramatically from 2019 to 2023. (See chart 4.) For example, in 2019, expenditures on food away from home accounted for about 4 in 7 total food dollars spent (43.2 percent). With the onset of the COVID-19 pandemic in 2020, this share dropped to less than 1 in 3 dollars spent (32.5 percent), the lowest share observed from 2019 to 2023. While recovering to well over 1 in 3 dollars spent in 2021 (36.6 percent) and increasing again to 2 in 5 dollars (39.0 percent) in 2022, the share did not return to its prepandemic level in 2023 and was nearly unchanged from 2022 (39.4 percent).

The changes in shares for food at and away from home in 2020 were the combined result of mandatory shutdowns of businesses enacted in most states and fear of contagion. Even after restaurants began to reopen, consumers limited their visits to restaurants to minimize risk of infection. Recovery in 2021 may have resulted from several factors, such as a lifting of shutdown orders, changes in restaurant service (even high-end restaurants were offering curbside pickup and home delivery), and the introduction of vaccines for COVID-19. At the same time, the recovery may have been limited by the arrival of the Delta and Omicron variants of COVID-19 during the second half of 2021.²³

Examining the effects of inflation on food at and away from home

The onset of inflation in 2021 and 2022 affected food at and away from home simultaneously, so it is unclear how it affected consumer decisions to choose between the two. Table D shows how and when prices increased for these categories, as well as expenditure trends from 2019 to 2023.

Mandatory stay-at-home orders in 2020 and hesitancy to return to dining out in 2021 led to a reduction in food away from home spending and a subsequent increase in CUs dining at home. Food away from home spending began to recover in 2021 (27.6 percent) and in 2022 (20.1 percent), before surpassing 2019 levels in 2023 (8.1 percent).²⁴ The CPI-U for food away from home rose more than 4 percent in 2021 and more than 7 percent in both 2022 and 2023. While the CPI data are not perfectly compatible with CE data, higher consumer prices translate to higher consumer expenditures.²⁵

Table D shows that consumers curtailed purchases from food away from home providers during 2020 but returned to purchasing even as the pandemic continued, and prices rose. Prices for food at and away from home in 2021 and 2022 rose in line with the CPI-U all items index. Increases in expenditures for food away from home (27.6 percent in 2021 and 20.1 percent in 2022) rose faster than the all items index (9.1 percent in 2021 and 9.0 percent in 2022). Food at home spending in 2020 and 2021 rose more than 6 percent each year, while prices for food at home increased about 4 percent each year. Undoubtedly, this is due in part to consumers purchasing less food away from home in these years than they did in 2019.

In contrast, food at home expenditures rose by more than 8 percent in 2022 but at a far slower rate than prices for food at home, which rose more than 11 percent. This might lead one to conclude that consumers were buying less food at home (in terms of bags of groceries, rather than dollars spent). In 2023, however, the increase in food at home expenditures (6.1 percent) exceeded that of food at home prices (5.0 percent). At a more granular level, expenditures on cereals and breads or dairy far outpaced their price increases as well. Consumers likely substituted items experiencing slower price increases for those experiencing faster price increases, stretched meals by freezing or preserving leftovers, and chose less expensive food options. There were also some categories with declining expenditures and increasing prices—expenditures declined for meat, poultry, fish, and eggs (-4.3 percent) and fruits and vegetables (-10.1 percent), while their prices rose by 1.8 percent and 2.5 percent, respectively.

Comparing expenditures for fast food and full service restaurants

Food away from home makes up a sizable share of total food spending, regardless of year or economic conditions. As consumers face options of what food to purchase at grocery stores, they also choose the venues they visit for food away from home. These include restaurants, food trucks, vending machines, and employer- or school-based cafeterias. To account for at least some of the variety in ambiance, food quality, price of meal, etc., two types of restaurants are analyzed: fast food and full service. Table E shows how the overlapping shocks of the pandemic and inflation affected these two types of dining experiences.

For both fast food and full service restaurants, the onset of the COVID-19 pandemic had a profound effect on expenditures. Expenditures at fast food restaurants fell by 16.1 percent in 2020, while expenditures at full service restaurants fell by 36.6 percent. Spending at full service restaurants experienced a strong rebound of 35.7 percent in 2021, which almost fully offset the 2020 decline in expenditures. By 2023, spending had not returned to prepandemic levels and spending growth slowed down to just 1.7 percent. In contrast, expenditures at fast food restaurants experienced a smaller decline in 2020 and a more robust recovery. In fact, expenditures for fast food surpassed prepandemic levels substantially in 2022 and rose even more sharply in 2023, as CUs likely purchased from cheaper alternatives to full service restaurants.

The onset of the COVID-19 pandemic also caused the percent reporting for both fast food and full service restaurants to fall sharply in 2020. The change in percent reporting nearly matched the change in expenditures for full service restaurants but was more extreme for fast food restaurants. Fast food expenditures declined by 16.1 percent, but percent reporting purchases for fast food restaurants declined by 19.7 percent. For both restaurant types, percent reporting rebounded in 2021 but stayed well below prepandemic levels and varied little from 2021 to 2023.

What did consumers spend on housing in 2023?

In 2023, the choice of CUs to rent or buy a home continued to be complicated and influenced by many factors, including high mortgage rates, a stagnated housing supply, and elevated housing prices. This section examines recent rental and homeownership rates, as well as utilities expenditures.

Homeownership rates remained unchanged in 2023

For the third year in a row, homeownership rates held constant at 65 percent, the same as the average for the time series from 2004 to 2023. (See chart 5.) This follows a decade high in homeownership of 66 percent at the beginning of the COVID-19 pandemic in 2020. The same factors that constrained homeownership growth in 2022 affected homeownership progress in 2023. The high average rate for a 30-year fixed rate mortgage (7.3 percent in the fourth quarter of 2023), lagged housing starts, and high shelter prices (the CPI-U for shelter rose 7.5 percent in 2023, exacerbating a 5.9-percent increase in 2022) all contributed to consistent homeownership rates.²⁶

Homeownership and rent spending by region

The 2023 housing market was characterized by historically high interest rates and continued supply constraints throughout the country.²⁷ Mortgage rates in 2023 started at an average 6.27 percent in January and peaked at an average 7.62 percent in October—the highest rate since 2000. However, renting continued to be costlier than homeownership, as rental prices continued to increase. Rent inventory levels in many cities were still below prepandemic levels in 2023 but higher than in 2021 and 2022. Supply constraints and limited home inventory persisted in 2023, as consumers who previously purchased homes with much lower interest and mortgage rates were reluctant to sell their homes.²⁸

Examining a group of eight selected MSAs, rental payments were costlier than mortgage interest and principal payments in four of the eight MSAs in 2023.²⁹ (See chart 6A.) Note that mortgage interest and principal payments are not the total cost of a mortgage or of home ownership; rather, they are the largest homeownership expenses budgeted by a CU. Homeowners without mortgages were removed from this analysis.

Of the four MSAs in which consumers paid higher rent than mortgage interest and principal payments, the difference between rental expenditures and mortgage expenditures ranged from 5.5 percent (Atlanta) to 20.9 percent (Dallas-Fort Worth).³⁰ In the Atlanta MSA, renters paid an average of $1,334 per month, while homeowners paid an average of $1,264. In the Dallas-Fort Worth MSA, renters paid an average of $1,358 per month, while homeowners paid an average of $1,123.

Among the MSAs with higher mortgage interest and principal payments than rental payments, mortgage payments cost as little as 3 percent (in the New York MSA, specifically) more than rental payments. In 2023, renters in the New York MSA paid an average of $18,561, while homeowners paid an average of $19,143 in mortgage interest and principal payments. The San Francisco MSA was the costliest for both renters and homeowners—homeowners (an average of $34,135) paid 36 percent more than renters (an average of $25,076) in the area in 2023.   

There was a mixture of rising and falling shelter costs across the selected MSAs in 2023. The Dallas-Fort Worth, New York, Phoenix, and San Francisco MSAs all experienced rising rental costs and falling mortgage interest and principal costs over the year. Elsewhere, the Boston, Miami, and Atlanta MSAs experienced both rising rental and mortgage expenditures, while the Chicago MSA experienced both declining rental and mortgage expenditures.

Three MSAs experienced increases in mortgage interest and principal payments in 2023—Boston (12.8 percent), Atlanta (2.4 percent), and Miami (0.1 percent). (See chart 6B.) These increases were likely tied to high home prices and scarce inventory. The Boston MSA experienced particularly high home prices compared with other parts of the country; in the Greater Boston area, the median price of a single-family home increased from $695,000 to $715,000 in 2023.³¹ Boston’s large increase in homeownership costs may also be linked to supply scarcity, as the available housing supply in Massachusetts decreased by 18.7 percent between July 2023 and September 2023.³²

The New York and Dallas-Fort Worth MSAs experienced large mortgage expenditure declines in 2023. Only one selected MSA—Chicago—experienced a decrease in rental expenditures. This may be attributed to a mixture of lower rental demand and more new construction than in 2022.³³

Comparing utilities expenditures of homeowners and renters across the country

In discussing housing affordability, the cost of rent or mortgage payments is often the focus of attention. However, utility costs are a critical aspect of housing affordability for renters and homeowners that need to be factored into a household’s monthly budget. Utilities are those basic needs a CU uses every day to keep their home functioning.

Electricity and natural gas are the most used energy sources in homes. Electricity is commonly used for lighting, heating and cooling systems, heating water, operating appliances, and powering electronics. Natural gas, on the other hand, offers slightly fewer uses and is more commonly used for heating space and water, drying clothes, and cooking.³⁴

Charts 7A and 7B show the stark contrast in both natural gas and electricity expenditures between homeowners and renters by selected MSA. Larger homes require more energy to heat and cool, which can increase bills and expenditures for homeowners, while some rental fees cover utilities and thus lower expenditures for renters.³⁵ Other factors that may contribute to the variation between homeowner and renter expenditures include the number of people living in the home and the number of appliances used on a regular basis.

Examining average utilities expenditures in eight selected MSAs in 2023, renters in the Phoenix MSA spent the most on electricity ($2,035), while renters in the Boston MSA spent the least ($993). (See chart 7A.) This may be climate-related, as heating and cooling appliances are the largest electricity consumers, and Phoenix has a much hotter climate than Boston.³⁶ Phoenix has a mean annual temperature of 72.8 °F, while Boston has a mean annual temperature of 51.9 °F.³⁷ In addition, Phoenix CUs rely heavily on electricity to cool their homes, while Boston CUs primarily use natural gas. Regarding homeowners and their electricity expenditures, Dallas-Fort Worth homeowners spent the most ($2,589), while Chicago homeowners spent the least ($1,423). (See chart 7B.) Again, the reason for this gap may be explained by climate. Similar to the expenditure differences seen among renters, electricity expenditures for homeowners were higher in MSAs with higher mean temperatures.

Expenditure trends for natural gas in 2023 were similar to electricity, although at a much lower level. Expenditures on natural gas for residential energy were extremely low in the Miami MSA among both renters and homeowners. In fact, in the Miami MSA, the average renter’s natural gas expenditures were about $7 and the average homeowner’s natural gas expenditures were about $70. The Chicago MSA had the highest natural gas expenditures among both renters ($533) and homeowners ($1,187).

A large reason for the variation in utilities expenditures by MSA is price. How much consumers pay depends on several factors, including the size and quality of living space, the surrounding climate, and their energy usage patterns. For example, consumers in areas prone to extreme temperatures will use their air conditioning and heating systems more, thus increasing their bills. Areas where infrastructure costs are higher may also be prone to increases in utility prices. Other factors that can impact utility prices include fuel prices, costs to maintain power plants and the electricity grid, and pricing regulations in particular states.³⁸

Spending on new and used vehicles in 2023

Aside from the purchase of a new home or the rental of an apartment unit, purchasing or leasing an automobile is another consequential expenditure a CU can make. To the relief of many consumers, used car and truck prices declined by 7.1 percent in 2023, the first over-the-year decline since 2017. New car and truck prices decelerated from a 10.4-percent jump in 2022 to a modest 3.5-percent increase in 2023. Light-vehicle production losses caused by semiconductor and microchip shortages substantially slowed down in 2023, placing downward pressure on new car prices.³⁹ This led to an average automobile transaction price of $47,456, a decline of roughly $2,000 from the 2022 high of $49,507.⁴⁰ As a result, CUs may have returned their favor to the new car market over the used car market, although in lower levels than in 2019 amid a less volatile automobile market. Thus, with higher demand and elevated borrowing costs due to persistently high interest rates on automobile loans, consumers slightly ramped up their automobile purchases from 2022 to 2023.

The vehicle market displayed the opposing forces of supply and demand throughout 2023, primarily driven by easing supply constraints, a stable Federal Reserve benchmark rate, and elevated borrowing rates for automobile loans. Chart 8A shows mean quarterly expenditures for those CUs that purchased a new car or truck.⁴¹ Reversing course from 2022, mean quarterly expenditures for new cars and trucks rose by $3,492, a jump of 8.6 percent from $40,654 in 2022 to $44,146 in 2023. (See chart 8A.) Percent reporting data for new cars and trucks concurrently rose by about 0.3 percentage points, from 1.35 in 2022 to 1.64 in 2023.⁴² This modest jump in percent reporting could indicate that consumers who delayed buying new cars in 2022 were drawn by greater inventory on dealer lots to reenter the new car market in 2023. Percent reporting also rose for the individual components of new cars and trucks, but mean quarterly expenditures failed to increase similarly. Percent reporting for new cars rose by 0.1 percentage points, but expenditures declined by over $1,000 to $38,839. New and used car prices declined 6.4 percent in 2023, so even with cheaper retail prices, additional leverage in price negotiations at dealerships, and the gradual shifting of consumer preferences toward trucks and SUVs, it’s conceivable that expenditures declined while percent reporting rose.⁴³ Even in the absence of these factors, if prices declined and quantity remained fixed, expenditures were bound to fall. Mean quarterly expenditures for new trucks rose almost $6,000 ($40,152 to $46,045), consistent with CUs’ adjusted preferences toward trucks.

A similar picture emerges when analyzing the used vehicle market. Mean quarterly expenditures for CUs who purchased used cars and trucks increased for the fifth year in a row and another $935 from 2022 levels to $18,052 in 2023. (See chart 8B.) The individual components of the used car market behaved similarly to the new car market. Mean quarterly expenditures for CUs who purchased a used car declined by $1,025, while expenditures for CUs who purchased a used truck rose by over $1,800. Although new vehicle inventory rebounded in 2023, borrowing costs did not decline from 2022 levels. Instead, borrowing became more costly, as the average percentage rate (APR) on automobile loans grew substantially. APRs of 48-, 60-, and 72-month automobile loans grew by 1.57, 1.60, and 2.03 percent, respectively, from the fourth quarter of 2022 to the fourth quarter of 2023.⁴⁴ With higher borrowing costs and therefore higher average monthly car payments, consumers may be rolling over more negative equity from used vehicles into new vehicles.⁴⁵ Average transaction prices and trade-in values declined in 2022, creating scenarios where a consumer might owe more on their vehicle than its current market value.⁴⁶ Attempts to roll that negative equity over may have stimulated demand and brought the market back to a more stable equilibrium in 2023.

Gasoline spending declined in 2023

After enduring the highest nominal price per gallon of gasoline in 2022, consumers were in search of relief at the gas pump. With subsiding fears of the COVID-19 pandemic, increasing telework rates, and high travel demand, the main constraint that held people back from returning their driving habits to 2019 levels was price.⁴⁷ Gasoline prices rose 39.6 percent in 2021 and 33.9 percent in 2022, averaging $4.19 per gallon in 2022. Prices peaked in June 2022 before declining in the second half of 2022. In 2023, prices declined further before stabilizing and following seasonal patterns. The average price of a gallon of gasoline fell to $3.77 in 2023, decreasing 42 cents from its high in 2022. (See chart 9A.) Increased domestic energy production contributed to the reduction in gasoline prices (-10.4 percent) and gasoline spending (-11.9 percent), while geopolitical tensions prevented gasoline prices from falling further.⁴⁸ (See chart 9B.)

Two factors determine total expenditures for any given good: price and quantity. Holding all other variables constant, a reduction in the price of gasoline per gallon, such as the $0.42 decline in 2023, will result in lower gasoline expenditures. To understand this, consider the equation G = P × Q, where G is total gasoline expenditures, P is the price per gallon paid by consumers, and Q is the quantity of gallons purchased. Analyzing chart 9B alone, one cannot definitively state whether the decline in gasoline expenditures was caused by a change in price, in quantity purchased, or a mixture of the two. In addition, note that expenditures could fall because of a reduction in price, even if quantity purchased increased in response to that decline, if prices fell by a larger percentage than quantities purchased rose.

One method for determining whether expenditure shifts were influenced by price or quantity is by analyzing the price elasticity of demand for a good, which measures how price shocks affect consumer spending. Price elasticity of demand can be influenced by factors such as the percentage of total expenditures for which a given good (gasoline in this case) accounts, whether the consumer defines the good as a necessity or a luxury, the number of close substitutes the good has, and the relative prices of those substitutes compared to the good of interest. Any shift in total expenditures directly depends on the magnitude of changes in price and quantity. In 2023, it was evident that both price and quantity were moving in a similar direction, although at varying magnitudes. Prices fell, while quantities purchased declined by about 0.25 gallon per week (indicating relative price inelasticity of gasoline with respect to price).

Chart 9B shows the percentage change in gasoline spending and the CPI-U for gasoline from 2008 to 2023. Chart 9A shows the average annual gasoline prices and weekly gallons of gasoline purchased, also from 2008 to 2023. The weekly quantity of gallons of gasoline is computed by first taking CE estimates for total gasoline expenditures, dividing that value by average price data for gasoline from the CPI, and then dividing by 52 to get a weekly estimate. Presenting quantity in a weekly figure provides a more realistic model of the frequency in which consumers fill their tanks: on a weekly and not annual basis.⁴⁹

To provide the most detailed analysis of gasoline spending patterns from 2008 (the first full year of the recession denoted by the National Bureau of Economic Research [NBER] as having occurred from December 2007 through June 2009) to 2023 (the year after record high gasoline prices and the highest annual change in inflation in over 40 years), charts 9A and 9B can be analyzed in conjunction.⁵⁰ As stated previously, gasoline prices and expenditures in 2023 declined by 10.4 percent and 11.9 percent, respectively, from the previous year’s highs. There was also a marginal reduction in the weekly quantity of gallons of gasoline purchased (-0.26 gallon per week). Increases in telework rates in 2023 likely corresponded to slightly lower driving demand, as fewer individuals used their cars to commute to the office.⁵¹

Chart 9B shows that gasoline inflation rose at a slightly slower pace in 2022 than in 2021, before decelerating much more in 2023. Following the June 2022 high of $5.06 per gallon, gasoline prices began to fall in each month, except for a small increase in October 2022. Gasoline prices averaged between $3.29 and $3.99 per gallon in 2023. This price decline and stabilization can be attributed to the opposing forces of a positive supply shock and weaker demand. On the supply side, annual domestic crude oil production grew by almost 344 million barrels of oil in 2023. This magnitude of growth in crude oil output has not been observed since 2018, when domestic production rose by over 580 million barrels.⁵² Also in 2023, the decline in gasoline expenditures (-11.9 percent) outpaced price declines (-10.4 percent) for only the second time in the period from 2008 to 2023. This could be due partly to recent increases in hybrid vehicle usage.⁵³ The only other time where a decline in gasoline expenditures outpaced prices was in 2020; as described in previous CE annual reports, mandatory stay-at-home orders, maximum telework postures, and a recession brought on by the COVID-19 pandemic explained this 24.8-percent plunge. Both the average price of gasoline (-$0.46 per gallon) and the weekly quantity (-1.28 gallons purchased per week) fell in 2020 and consumers spent dramatically less than they did in 2019. This represents the quantity effect and the price effect working together. The opposite trend occurred during the previous recession in 2009—prices fell, quantity rose, and expenditures fell, indicating a strong price effect during that year. In 2023, the decline in gasoline expenditures was only 1.5 percentage points more than the decline in gasoline prices. The average weekly quantity of gasoline only fell by 0.26 gallons per week, so the price effect was higher than the quantity effect in 2023.

Summary

In 2023, the average CU navigated a 4.1-percent annual increase in inflation and spent 5.9 percent (1.8 percent in real terms) more than in 2022. CUs adapted and reevaluated their economic wants and needs, increasing their spending on education, transportation, food, healthcare, and housing. Spending patterns for food at and away from home continued to trend toward prepandemic levels in 2023. Homeownership rates were unchanged for the third year in a row, while both rental and mortgage expenditures remained high across the country’s MSAs. Average transaction prices for new cars fell, but mean quarterly expenditures rose in 2023. Finally, gasoline spending declined over the year.