In everyday living, consumption is the act of using or consuming things, but in business consumption refers to the level of current spending for new goods and services; in economics and business statistics, it is the amount of spending by households for currently produced goods and SERVICES. The purchase of a used car or home is not included in current consumption statistics, because it was included during the period of time when it was purchased. Consumption spending is the largest component of total spending in NATIONAL INCOME ACCOUNTING. Because consumption represents two-thirds of total spending, it is the most closely watched component. Economists analyze the level and changes in the level of consumption spending in the economy. They have developed numerous theories regarding what factors influence consumption, the major one being current INCOME, since without income most people do little consumption spending. A variety of other factors influence peoples’ consumption decisions, including expectations, WEALTH, and access to credit. Expectations play an important role in current spending decisions. College seniors often purchase a car on the expectation of graduating and getting a good-paying job. Nobel Prize–winning economist Milton Friedman proposed the permanent-income hypothesis, suggesting consumption is determined by what people consider to be their permanent income rather than their actual income. Permanent income is what people expect to earn annually, not including transitory income or sudden windfalls such as prizes or one-time tax cuts, which temporarily increase their income. Since the late 1990s, wealth has become an increasingly important consideration in consumption spending by Americans, many of whom first invested in the STOCK MARKET in the early 1990s. By 1999 most investors had accumulated significant increases in the value of their portfolios, especially if they had invested in technology companies. Sales of luxury cars and high-priced California real estate soared based on newly acquired wealth. When technology stocks began to fall in early 2000, many Americans’ wealth declined, and with it their consumption spending diminished. Alan Greenspan, chairman of the FEDERAL RESERVE SYSTEM, has frequently analyzed the “wealth effect” on consumer spending. Economists also recognize that expectations of wealth through inheritance influence current spending. During the 1990s American consumers went on a credit binge, and one estimate at the end of the decade had consumer credit totaling $1.3 trillion. Credit and access to credit influences current consumer spending. Many college students have learned the hard way how easy it is to use credit for current consumption spending and become deep in debt as a result. Some consumer spending, of homes and automobiles particularly, is influenced by INTEREST RATES charged for financing, but much of this spending is limited by the maximum credit-level allowed. Retail companies study changes in consumption spending to anticipate changes in DEMAND for their goods and services. Consumption of some products and services, such as health care, are relatively insensitive to changes in income or credit; while other products, leisure travel and appliances, are sensitive to changes in income. Manufacturers also study changes in consumption spending when making PRODUCTION-planning schedules and long-term CAPITAL investment decisions. Governments keep track of consumption spending in order to predict changes in sales tax revenue. U.S. consumption statistics are available in the Survey of Current Business Statistics, published by the Department of Commerce.