the u.s. consumer spending outlook presented to: global insight outlook seminar atlanta, georgia...

The U.S. Consumer Spending Outlook

Presented to:Global Insight Outlook Seminar

Atlanta, GeorgiaApril 29, 2003

Presented by:Sara Johnson

Managing Director,Global Macroeconomics Group

Copyright © 2003 Global Insight, Inc.

Copyright © 2003 Global Insight, Inc. 2

A Slowdown in Consumer Spending

• The recession that began in March 2001 was the first on record without a decline in real consumer spending.

• Real consumption growth will slow from 3.1% in 2002 to 2.3% this year, its smallest gain since 1991.

• Job losses and depleted equity wealth have forced household to restrain spending and augment savings.

• The war affected real spending through higher energy costs, reluctance to travel, and postponed hiring.

• An upturn in employment, moderate income tax cuts, and falling energy prices will spark a 3.8% gain in real consumer spending in 2004.


Real Consumer Spending and Confidence

(Annual percent change, 1996$) (Michigan Index, 1967=1.0)

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004 2005 2006

75

80

85

90

95

100

105

110

Real Consumption Growth Consumer Sentiment


Disposable Income Supports Consumer Spending

-1

0

1

2

3

4

5

6

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Real Consumption Real Disposable Income

(Percent change)

Income tax cuts added 2.9 percentage points to disposable income growth in 2002.


Consumers Are Worried About Finances

• Real wage income stopped growing in early 2001.

• Government transfer payments and federal income tax cuts have supported disposable income.

• Debt service burdens are high but manageable for most households.

• Yet, record bankruptcies, credit card delinquencies, and mortgage foreclosures indicate financial stress.

• Pensions look less secure after the stock market collapse and a wave of corporate bankruptcies.

• With households saving more, net worth is beginning to recover from its summer 2002 low.


A Lagging Recovery in Employment

-3

-2

-1

0

1

2

3

1998 1999 2000 2001 2002 2003 2004 2005 2006

The U.S. lost over 2 million jobs from March 2001 to March 2003.

(Percent change, annual rate)


Wage Gains Have Slowed in a Slack Job Market

(Year-over-year percent change)

0

1

2

3

4

5

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

ECI, Wages & Salaries Consumption Deflator


Real Equity and Net Worth per Household

0

75

150

225

300

375

450

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Net Worth Equity Holdings

($Thousands per household, 2002 dollars)


Bank Card Delinquency Rate Reaches New High

0

1

2

3

4

5

1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

2

4

6

8

10

12

Bank Card Delinquency Rate Unemployment Rate

(Percent) (Percent)


Consumer Debt Service Burdens Decreasing

(Percent of disposable income)

0

3

6

9

12

15

1980 1984 1988 1992 1996 2000 2004 2008

Non-mortgage Mortgage


Consumer Spending Trends in 2003

What’s Hot• Recreational Vehicles

• Musical Instruments

• Cell Phones

• Internet Services

• Cable TV

• Health Care and Drugs

• Domestic Services

• Gambling

• Investment Counseling

• Private Education

What’s Not• Cars

• Luggage

• Video Rentals

• Telephone Services

• Intercity Transportation

• Bowling

• Pet Services except Vets

• Brokerage Services

• Dry-cleaning, Laundries

• Barbers


Consumer Spending Will Shift to Health, Recreation, and Information

-4 -2 0 2 4 6 8

Vehicles & Parts

Home Furnishings

Apparel

Computers & Software

Recreation Services

Food & Beverages

Medical Care & Products

2002 2003 2004

(Percent change, current dollars)

Spending on Energy: -3.4% in 2002, +11.1% in 2003, and -4.3% in 2004.


Light Vehicle Sales Responded to Incentives

(Millions of units)

0

4

8

12

16

20

1972 1976 1980 1984 1988 1992 1996 2000 2004

Cars Light Trucks


Auto Incentives Peaked in Late 2002

5

7

9

11

13

15

17

19

21

1990 1992 1994 1996 1998 2000 2002

(Incentives as a percent of manufacturers’ suggested retail price)


Growth in Real Spending on Home Furnishings and Apparel Will Slow in 2003

-2

0

2

4

6

8

10

12

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Home Furnishings Apparel

(Percent change, 1996 dollars)


Home-Building Will Gradually Decrease as Interest Rates Rise

(Housing starts, millions of units)

0.0

0.4

0.8

1.2

1.6

2.0

2.4

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010

Single-Family Multi-Family


Allocation of Cash-outs from Home Refinance

Home Improvement

35%

Real Estate or Business

10%Stocks11%

Taxes2%

Debt Repayment

26%

Consumer Spending

16%

(Percent of total, January 2001-June 2002)


Median Existing Home Price Inflation, 1999-2002(Annual percent change)

8.9 to 14.45.9 to 8.84.6 to 5.82.6 to 4.5


Tourism: Dismal Present, Brighter Future

• A sluggish world economy, the Iraq war, and SARS have delayed the recovery in tourism markets.

• Current trips are of shorter duration, to closer locations.

• Spending per trip has fallen sharply.

• Travelers are flying less and booking late.

• Faster economic growth, easing of geopolitical tensions, and pent-up demand will boost travel in 2004.

• Long-term prospects are bright; rising incomes and an aging population will increase travel demand.


Spending on Travel & Recreation Will Rebound

-6

-3

0

3

6

9

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Intercity Transportation Recreation Services

(Percent change, 1996 dollars)


The U.S. Economic Service: Comprehensive Forecasts of the Consumer Environment

• Real and nominal consumer spending and price deflators for 35 distinct categories

• Personal income by source, disposable income

• Households, population by age groups

• Household financial situation• Assets and liabilities by type, net worth, stock prices• Credit card delinquency rate, mortgage foreclosure rate,

personal bankruptcies, interest rates, debt service

• Housing and automotive market activity• Sales, prices, affordability, stocks, construction

• Consumer sentiment, labor market indicators

We forecast 1,900 U.S. economic indicators at a quarterly frequency, updated monthly.


Consumer Spending Categories Forecasted

• New autos• Used autos• New trucks• Tires• Other vehicles & parts• Computers• Software• Furniture & appliances• Medical devices• All other durables• Clothing & shoes• Food groceries• Food at restaurants• Free food consumed on farms• Heating fuels• Motor gasoline• Drugs• Tobacco products

• All other nondurables• Household domestic services• Household electricity• Household natural gas• Telephone services• Water & sewer services• Other household operation services• Housing services• Medical care• Free financial services• Other personal business services• Recreation services• Intercity transportation• Purchased local transportation• Motor vehicle leases• Other user-operated transportation• All other services


Current U.S. Hispanic Market Studies

• Population and income forecasts• Hispanic population, households, immigration

• Labor force characteristics: educational attainment, unemployment rates

• Forecasts linked to Global Insight’s national and regional forecasts• U.S., States, Metro Areas, Counties, DMAs

• Hispanic spending for custom categories and store types• Financial services: Credit cards, mortgage

lending, wealth management

• Electronics & Appliances Stores

• Entertainment

• Automotive


U.S. Hispanic Market: Growing in Size and Purchasing Power

2002 2022

Hispanic Population 38.5 million 66.1 million

Percent of U.S. Population 13.4% 19.5%

Hispanic Households 10.4 million 20.7 million

HH Disposable Income, 2002 $ $51,500 $79,100

Household Income, % of U.S. Avg. 77% 82%

Adults with College Degree 11.2% 23.5%

Adults without High School Degree 42.3% 25.8%


Hispanic Spending Will Outpace U.S. Total

0 1 2 3 4 5 6 7 8 9

Transportation

Medical Services

Housing Services

Clothing & Shoes

Food & Beverages

Furnishings, Electronics

Motor Vehicles & Parts

Total Consumption

Total Hispanic

(Percent change, constant dollars, 2002-12)


Consumer Markets Service

• Consumer Markets Monthly Briefing

• Forecasts and insights on consumer economic drivers and purchase behavior

• Coverage of 35 markets

• Nominal and real spending, prices

• Long-Term Household Demographics Forecast

• By Life Stage

• By Age Group and Generation

• By Income Class

• Active Client Support


Consumer Markets Monthly Briefing Coverage

• The Economy

• Consumer Incomes

• Consumer Finances

• Retailing

• Autos

• Apparel

• Food

• Home Goods

• Leisure

• Health Care

• Personal Care


Thank you!

Visit our web site atwww.globalinsight.com

the u.s. consumer spending outlook presented to: global insight outlook seminar atlanta, georgia...

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