Consumer spending, which is responsible for about 70% of the economic activity in the United States, plays an important role in the structure and health of the US economy. Thus, answers to the following questions may give us clues about the state of our economy: who is spending, where are people spending, and what are people spending on? This blogpost will attempt to begin to answer these questions by presenting data on a breakdown of how consumers are spending, the changes in spending in the United States over the past few decades, and a couple of examples of how consumer spending impacts the development and success of businesses. A Breakdown of How We Spend
The mean (average) consumer expenditure before taxes was $51,422 from June 2012 to June 2013 (Bureau of Labor Statistics, Consumer Expenditure Survey). One way to consider spending by income brackets is to order the sample of individuals by income, from lowest to highest, and split the sample of people into five groups, creating quintiles. The lowest quintile made up 8.6% of the aggregate expenditures, the second quintile 12.7%, the third quintile 16.7%, the fourth quintile 23.3%, and the highest quintile 34.4%. The following table present a breakdown of consumer expenditure based on income.
Table 1: Percent of income expended per item by income group (quintiles) before taxes, Data Source: Bureau of Labor Statistics, Consumer Expenditure Survey.
One of the biggest spending variations from lowest income quintile to upper income quintile can be seen in the percent of expenditure towards personal insurance and pensions—a 13.4 percentage point difference. On average, individuals in the upper quintile spent 15.6% of their income on personal insurance and pensions while individuals in the lower quintile spent 2.2% of their income. Another way of considering consumer expenditure is considering the percent of the aggregate expenditure each income group is responsible for (see table 2). For example, the upper quintile made up 55.7% of the total spending on personal insurance and pensions while the lowest quintile made up 1.8% of the total spending.
Table 2: Percent of aggregate expenditure each income group is responsible for (quintiles) before taxes, Data Source: Bureau of Labor Statistics, Consumer Expenditure Survey.
How Has Spending Changed
The amount households spend on certain items has changed over time, and for various reasons. For example, when comparing consumer expenditure statistics from 1949 to 2011, the amount individuals spend on homes has increased while the amount people spend on food has decreased.
Figure 1: Source: “What America Buys,” Lam Thuy Vo/NPR and Bureau of Labor Statistics
In NPR’s (National Public Radio) What America Buys, the authors present one reason for the decrease in food and clothes expenditure: increased productivity in the agricultural and manufacturing sectors. Thus, technological innovations play a role in the change in consumer spending. The article also highlights that consumers are buying bigger houses on average and car ownership is more common.
So, now we have an idea of who is spending and what people are spending on. However, where are people spending?
Where are Americans Shopping
Where Americans shop depends on multiple factors. One factor is household income.
In The Middle Class Is Steadily Eroding. Just Ask the Business World., Schwartz presents the change in consumer expenditure as a result of income inequality, highlighting that stock shares have increased for “upper-end stores like Nordstrom and bargain-basement chains like Dollar Tree and Family Dollar Stores” while shares of middle of the road companies have fallen. In this article, when discussing the middle class customers of Olive Garden, a Morgan Stanley restaurant analyst, John Glass, highlighted that the growth of income is stagnant and the costs of necessities are rising. Thus, people have to reduce spending in other places.
The economic condition of those who identify as middle class may be pushing individuals to reconsider where they are shopping. According to Retale’s The Dollar Stores of America, the median income of a state is a potential indicator of the number of dollar stores in the area. For example, the median household income in South Carolina is $44,623 and there are 1.65 dollar stores per 10,000 citizens. However, in Mississippi, the median income is $38,882 and there are 2.45 dollar stores per 10,000 citizens. In this study, Retale is specifically considering the spread of the top 7 dollar store chains.
While these statistics are national, costs and needs vary by region. What do you think households in Sarasota County spend their income on? If you were to track your spending for 2 weeks, what would the breakdown of your spending look like?