Consumer Spending Statistics and Current Trends
Consumer spending, also known as personal consumption expenditures (PCE), refers to the value of the goods and services bought for or by residents of the United States. The Bureau of Economic Analysis reports consumer spending at an annualized rate in order to compare it to gross domestic product (GDP). Consumer spending statistics help provide a picture of the financial health of the economy at large, so businesses that monitor them can better predict consumer behavior.
Consumer Spending Shows Positive Signs
PCE was at $14.795 trillion as of the fourth quarter of 2019, according to the Bureau of Economic Analysis (BEA). GDP was at $21.729 trillion for the same quarter, according to BEA data. Consumer spending increased in both goods and services. Specifically, spending on recreational goods and vehicles, as well as food and beverages grew. Consumers also spent more on personal care and legal services, as well as housing and utilities.
Over two-thirds of consumer spending was on services, such as housing and health care. Over one-fifth was spent on non-durable goods, such as food and clothing. The rest was spent on durable goods, such as cars and furniture. The Personal Consumption Expenditures Report lists more sub-categories of consumer spending.
Consumer spending increased by 1.8% in the fourth quarter of 2019. Strong consumer spending is the main reason the GDP growth rate has been within a healthy range of 2% to 3% since the Great Recession.
The latest available Bureau of Labor Statistics data, from 2018, reported that the average American spent $61,224 for the year.
Retail Sales Are Recovering
U.S. retail sales in the quarter were estimated to have grown by 3.8% over the same quarter last year, according to Census Bureau data. The annualized rate is above the 3% annual retail sales growth rate viewed as desirable. Online sales for Black Friday in 2019 grew by 19.6% over the previous year, according to Adobe data. Brick-and-mortar store sales increased only 1.6% from 2018, says RetailNext.
Consumer spending continues to shift toward online shopping versus shopping in brick-and-mortar stores. This will increase dramatically as a result of the coronavirus pandemic.
Why Consumer Spending Matters
Since PCE is reported monthly, it gives an early indication of that quarter's real GDP, which is GDP that factors in inflation or deflation. Since consumer spending is such a large component of GDP, it is a leading economic indicator. If spending is flat, economic growth may also be anemic, which can increase recession fears.
Beyond forecasting the economy, consumer spending statistics also help retailers evolve in a way that appeals to consumers so that they can remain in business. These companies have had to cope with flat consumer incomes for decades.
How Retailers Have Responded to Changing Consumer Expectations
Retailers now have to contend with shoppers who expect high value combined with low prices. As a result, Amazon and other online stores have stolen business from brick-and-mortar stores. Companies that depend exclusively on a low-cost or a high-value competitive advantage have fallen behind. Instead, the retailers today must provide both.
Those companies that don't strike the right balance between value and price could lose their customers permanently.
Factors That Impact Consumer Spending
For business owners looking for ways to appeal to consumers, four trends should factor into their planning.
Spending took a long time to bounce back from the recession. First and foremost, millions of people went back to school to find new careers. That cut back on shopping. But don't blame credit card debt alone, which surpassed pre-recession levels in 2017. Home and student loan debt are also major contributors to overall consumer debt. Increases in consumer debt can curb future spending.
Average income levels have not kept pace with growth in either the stock market or GDP. That's partly because jobs have been outsourced to cheaper labor in China, India, and low-wage manufacturing in Asia. Despite changes to NAFTA and other free trade agreements, some manufacturers may still choose to cut jobs locally and hire abroad. Employees who lose jobs may have cut back on spending and increased saving to make up for income shortfalls.
Many analysts look to the Consumer Confidence Index, a measure of how Americans feel about the economy, to predict how likely it is consumers will spend. That's because people are more likely to shop when they feel confident about their ability to get a more lucrative job. Confidence numbers plummeted twice after 2007, but they have mostly ticked higher over the past decade.
The Shift to Thrift
During the recession, shoppers searched for the cheapest prices possible, ensuring the success of Walmart and dollar stores. As the economy started to improve, discount stores didn't revert to full-price stores. Instead, a shift occurred. A 2010 Alix Partners Retail Survey found that consumers were buying "good enough" products and were pleasantly surprised that they were "good enough." Americans were not as focused on retaining their standard of living as they were before the financial crisis. This paradigm shift is likely here to stay, so businesses that cater to this new breed of customers are better poised to stay afloat.
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