Holidays
Consumers hit hard by holiday debt may find some relief in a new strategy
By Teresa
McUsic
Special to the Star-Telegram
January 20, 2005
LOS ANGELES (AdAge.com) -- Americans are the biggest spenders on the planet. Collectively, U.S. consumers spend more each week than the annual gross domestic product of Finland. At that pace of spending, the average American household’s economic outlays for all goods and services reached a rather grand $1,500 a week in 2005, according to the U.S. Bureau of Economic Analysis.
Some fraction of that consumer spending is, of course, the result of our basic need for food, clothing, shelter and transportation. But really, how many households need two homes, three vehicles and four TVs? It’s clear that a great deal of, if not most, consumer spending is driven by desire, not need. Not many of us who work in advertising and marketing would have jobs if all we did was serve the basic human needs of sensible consumers.
We who work in marketing may not want to admit it, but the fact is we desperately need consumers willing to spend every dime they make and then some on items such as $50,000 SUVs and million-dollar vacation homes. If Americans ever started saving money like those prudent Japanese consumers, countless industries besides our own would be on the ropes.
Real—after inflation—consumer spending in the U.S. rose 23% in the past 10 years, while the number of households was up only 14%. If spending had risen at the same rate as households, those families or other household types would have spent $109.50 less a week than they in fact did in 2005. That seemingly small sum, when added up, would have subtracted more than $640 billion from consumer spending, and the U.S. economy would now be in a deep funk.
That extra $109.50 a week consumers spent last year paid a lot of advertising and marketing salaries. So the key question is this: Will U.S. consumers continue to consume as they have in the past decade? Or will they—horrors!—get real and start living within their means? We may not think that we’ve bet the ranch on the answer. But we have, because, besides our jobs, the rising value of both of our homes depends on the outcome.
Here then are three reasons why you should be very worried about the future of consumer spending followed by three reasons why you might be able to relax, for now. First the bad news:
1. HIGHER GROWTH IN LOWER-INCOME HOUSEHOLDS
A record 1.5 million babies were born to unwed mothers in 2004; that’s 36% of all births, up from 28% in 1990. (Fewer than one in four of those new single moms was a teenager; the vast majority were adults age 20 years old or older.)
This is important because single mothers have a median income of less than $27,000 a year, roughly one-third that of married couples with children. During the past five years, the number of single moms rose 11%—more than twice the 4% growth rate for married couples with children.
During the next five years, the ranks of single moms are likely to grow even faster and married mothers with children even slower. One reason is that the highest concentration of unmarried women who have a child is in the age range of 20-29. The Census Bureau projects 1.2 million more women aged 20-29 will have children by 2010, a 6% increase.
By contrast, three-quarters of all married couples with children are in the range of 30-49, an age segment with no projected growth in the next five years. The top end of that age segment, consumers 40-49, was up 6% over the past five years but is projected to shrink 3% in the next five.
The “Income Prospects” chart (above) summarizes the high growth of households with below-average income and the slowing or stagnant growth of most, but not all, households with above-average income. Married couples with no kids have above-average income and are projected to grow faster in the next five years. But a big part of that married/no-kids growth will be among ages 65-plus, where income is below average due to widespread retirement.
Another trend that will dampen household income and spending is
the rapid population increase among Hispanics, where average household income is
only $45,900. The Hispanic population is projected to increase 14% over the next
five years (see “Growth vs. Income” above). By comparison, white non-Hispanics,
where household income is $65,300, are projected to edge up only 1% in the same
period, according to the Census Bureau.
