Economics Today 18th Edition by Roger LeRoy Miller

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The Subdued Recovery in Household Spending on Services
Recall that consumption goods are any items whether physical goods or services-that households purchase and then use up. Physical consumption goods include items such as clothing, shoes and foods. Services include haircuts, services of health clubs, and services of lawn care firms.
During past recoveries of the U.S. economy from recessions, as real disposable income has risen, spending on physical goods typically has risen at a comparable or some-what faster pace than have expenditures on services. As shown in Figure 12-9, however, during the months following the end of the 2007-2009 recession, there was a much sharper difference, compared with prior recoveries, in spending growth for physical goods versus services. The explanation for this greater difference was an unusually small increase in household spending on services as disposable income increased following the recession.

Why Expenditures on Services Grew So Slowly
Most economists agree that the fainter response of house-hold spending on services during the most recent recovery resulted from a decline in overall household net wealth According to this view, it is the services component of total real consumption spending that is most sensitive to chang-es in net wealth. When the value of household wealth is lower, people tend to wait longer between haircuts and end their health club memberships.
If this theory is correct, then the drop in net wealth reduced the amount of household spending on services at any given level of real disposable income, which shifted the consumption function downward. Then, when disposable income rose during the recovery from the recession, real spending on services began to rise but remained lower than before.
Why do both movements along and any shifts in the consumption function simultaneously explain observed changes in desired aggregate consumption spending?