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The disappearing necessity budget

The disappearing necessity budget

Money Moves
By Newzino Staff |

How Americans went from spending 80% on basics to having half their income for discretionary choices

November 12th, 2024: 2024 Data Confirms Historic Lows for Food and Apparel

Overview

In 1901, the typical American family spent 80 cents of every dollar on food, clothing, and shelter. Today that figure is under 50 cents. The remaining half now flows into healthcare, entertainment, education, transportation, and services that barely existed a century ago.

This shift—driven by agricultural mechanization, manufacturing productivity, and global trade—represents one of the most consequential changes in modern economic life. It has reshaped what industries matter, what jobs exist, and what problems households face. Where families once struggled to afford calories and fabric, they now navigate healthcare costs and housing markets that have absorbed much of the slack created by cheaper goods.

Key Indicators

42.5% → 12.9%
Food spending share
Decline in the share of household spending on food from 1901 to 2024
14% → 2.5%
Clothing spending share
Decline in the share of household spending on apparel from 1901 to 2024
23% → 33%
Housing spending share
Increase in the share of household spending on shelter from 1901 to 2024
6.4%
US food share (global rank)
Americans spend the lowest percentage of income on food of any country in the world

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People Involved

Ernst Engel
Ernst Engel
German statistician who discovered the pattern (Deceased (1821-1896))

Organizations Involved

U.S. Bureau of Labor Statistics (BLS)
U.S. Bureau of Labor Statistics (BLS)
Federal Statistical Agency
Status: Primary source of US consumer expenditure data

The BLS conducts the Consumer Expenditure Survey, tracking American household spending patterns continuously since 1980 and periodically since 1888.

Timeline

  1. 2024 Data Confirms Historic Lows for Food and Apparel

    Data

    BLS data shows food at 12.9%, housing at 33.4%, and apparel at 2.5% of consumer expenditures. Americans spend 10.4% of disposable income on food, down from 10.6% the prior year.

  2. US Healthcare Spending Hits $5.3 Trillion

    Healthcare

    Healthcare now consumes 18% of GDP—$15,474 per person—dwarfing the entire food budget. Services have replaced goods as the dominant cost pressure.

  3. Housing Price-to-Income Ratio Hits Record

    Housing

    Median home prices reach 5.6 times median household income—the highest ratio since records began in the early 1970s—as housing absorbs some of the slack created by cheaper goods.

  4. BLS Documents the Century's Transformation

    Report

    The Bureau of Labor Statistics' '100 Years of U.S. Consumer Spending' report shows necessities falling from 80% to 50% of budgets, freeing 30 percentage points for discretionary spending.

  5. Food-at-Home Reaches 7% of Disposable Income

    Data

    A century of productivity gains has made food cheaper relative to income than at any point in human history. US agricultural output quadrupled since 1930 while real farm prices fell 1% annually.

  6. Food at 15%, Apparel at 6% of Spending

    Data

    The long decline continues. Food represents 15% of consumer expenditures, apparel 6%—both headed lower.

  7. Television Ownership Hits 87%

    Consumer

    From 12% in 1950 to 87% by 1960, TV ownership exemplifies how falling necessity costs freed income for new consumer categories that barely existed a generation earlier.

  8. Food-at-Home Falls to 22% of Disposable Income

    Data

    Agricultural productivity gains cut the cost of feeding a family. The share spent on food prepared at home has dropped by nearly half from 1900 levels.

  9. Postwar Consumer Boom Begins

    Economic

    After wartime rationing, Americans spend wartime savings on cars, televisions, and refrigerators. Between 1945-1949, they purchase 20 million refrigerators, 21.4 million cars, and 5.5 million stoves.

  10. Depression-Era Survey Shows Apparel Still at 10%

    Data

    Despite economic hardship, American families still allocate about 1 in 10 dollars to apparel—a share that will drop to 1 in 20 dollars by the late 1990s.

  11. Stock Market Crash Triggers Consumer Retrenchment

    Economic

    The crash ends the 1920s consumer boom. Spending on durable goods like cars and refrigerators collapses, but food and basic necessity spending holds steady as families prioritize survival.

  12. BLS Captures Pre-Industrial Spending Baseline

    Data

    The Bureau of Labor Statistics surveys American families, finding they spend 79.8% of their budgets on food (42.5%), clothing (14%), and housing (23.3%). Only 20% remains for everything else.

  13. Engel Discovers the Law of Declining Food Share

    Research

    German statistician Ernst Engel publishes his study of 199 Belgian working-class family budgets, showing that the share of income spent on food falls as income rises—even as absolute food spending increases.

Scenarios

1

Services Absorb All Gains, Living Standards Stagnate

Discussed by: Healthcare economists, housing policy analysts

Productivity gains in goods continue, but healthcare costs (currently 18% of GDP) and housing costs (now 6x median income for home purchase) absorb all freed income. Discretionary spending remains flat despite falling food and clothing costs. The pattern that lifted living standards for 124 years stops translating into felt prosperity.

2

Technology Deflates Services as It Did Goods

Discussed by: Tech industry analysts, productivity economists

AI and automation eventually do to healthcare, education, and housing what mechanization did to agriculture and manufacturing. Service costs fall as a share of income, freeing new discretionary capacity. The spending shift resumes its historic trajectory toward ever-smaller necessity shares.

3

Developing World Follows the Same Arc

Discussed by: Development economists, World Bank, USDA Economic Research Service

Countries where food is 40-56% of household spending (Nigeria, Kenya, India) follow the same productivity-driven trajectory. As incomes rise and agriculture modernizes, their food shares fall toward rich-country levels, reshaping global consumer demand and agricultural trade patterns.

4

Climate Shocks Reverse Decades of Food Deflation

Discussed by: Agricultural economists, climate researchers, food security analysts

Extreme weather, water scarcity, and supply chain disruptions reverse the long decline in real food prices. Food's share of household spending rises for the first time since the Great Depression, forcing discretionary cuts elsewhere and creating renewed food insecurity in lower-income households.

Historical Context

The British Industrial Revolution and Food Prices (1750-1850)

1750-1850

What Happened

Enclosure acts consolidated farmland while new crop rotations and mechanization (seed drills, threshing machines) boosted agricultural output. Britain's food supply expanded even as farm labor shrank from 80% to under 25% of the workforce. Food prices fell relative to wages.

Outcome

Short Term

Displaced agricultural workers migrated to factory towns, providing labor for textile and manufacturing industries.

Long Term

Established the pattern all industrializing economies would follow: agricultural productivity rises, food's share of spending falls, workers shift to manufacturing and services.

Why It's Relevant Today

The American experience of 1901-2024 mirrors Britain's earlier transformation. Both show that when fewer people can produce more food, the spending shift toward discretionary goods is a structural feature of development, not a temporary condition.

The Great Compression (1913-1950)

1913-1950

What Happened

Two world wars, immigration restrictions, and New Deal policies compressed American wages. The income gap between rich and poor narrowed dramatically. Union membership rose from 3 million to 14 million. Real wages for manufacturing workers roughly doubled.

Outcome

Short Term

Working-class families gained purchasing power, enabling mass consumption of goods previously reserved for the wealthy.

Long Term

Created the postwar middle class whose discretionary spending—on cars, appliances, homes—drove economic growth for three decades.

Why It's Relevant Today

Rising wages accelerated the spending shift. As the bottom half of households earned more, they could afford to move beyond necessities faster, demonstrating that Engel's Law operates through income growth, not just productivity gains.

China's Consumer Transformation (1980-2020)

1980-2020

What Happened

China's economic reforms lifted 800 million people out of poverty. Urban household food spending fell from over 50% to under 30% of consumption. Spending on education, healthcare, transportation, and housing surged. Retail sales grew from $30 billion to $6 trillion.

Outcome

Short Term

Chinese consumers became the world's largest market for automobiles, smartphones, and luxury goods.

Long Term

Proved Engel's Law operates globally: as incomes rise, food shares fall and discretionary spending rises, regardless of political system or cultural context.

Why It's Relevant Today

China compressed into 40 years a transformation America took 120 years to complete. This acceleration suggests the pattern is robust and predictable, offering a template for understanding how Nigeria, India, and other developing economies will transform.

13 Sources:
+7
Bureau of Labor Statistics Human Progress Wikipedia Our World in Data USDA Economic Research Service EH.net HISTORY Harvard Joint Center for Housing Studies Peterson-KFF Health System Tracker World Economic Forum Bureau of Labor Statistics Bureau of Labor Statistics USDA Economic Research Service