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The U.S. Consumer Spending Outlook
Presented to:
Global Insight Outlook Seminar
Atlanta, Georgia
April 29, 2003
Presented by:
Sara Johnson
Managing Director,
Global Macroeconomics Group
Copyright © 2003 Global Insight, Inc.
A Slowdown in Consumer Spending
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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.
Copyright © 2003 Global Insight, Inc.
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Real Consumer Spending and Confidence
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(Annual percent change, 1996$)
(Michigan Index, 1967=1.0)
110
6
105
5
100
4
95
3
90
2
85
1
80
0
75
1998
1999
2000
2001
2002
2003
Real Consumption Growth
2004
2005
2006
Consumer Sentiment
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Disposable Income Supports Consumer Spending
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(Percent change)
Income tax cuts added 2.9 percentage points
to disposable income growth in 2002.
5
4
3
2
1
0
-1
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Real Consumption
Real Disposable Income
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Consumers Are Worried About Finances
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Real wage income stopped growing in early 2001.
Government transfer payments and federal income tax
cuts have supported disposable income.
Debt service burdens are high but manageable for most
households.
Yet, record bankruptcies, credit card delinquencies, and
mortgage foreclosures indicate financial stress.
Pensions look less secure after the stock market
collapse and a wave of corporate bankruptcies.
With households saving more, net worth is beginning to
recover from its summer 2002 low.
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A Lagging Recovery in Employment
The U.S. lost over 2 million jobs from March 2001 to March 2003.
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(Percent change, annual rate)
2
1
0
-1
-2
-3
1998
1999
2000
2001
2002
2003
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2004
2005
2006
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Wage Gains Have Slowed in a Slack Job Market
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(Year-over-year percent change)
4
3
2
1
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
ECI, Wages & Salaries
Consumption Deflator
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Real Equity and Net Worth per Household
($Thousands per household, 2002 dollars)
450
375
300
225
150
75
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Net Worth
Equity Holdings
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Bank Card Delinquency Rate Reaches New High
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(Percent)
(Percent)
12
4
10
3
8
2
6
1
4
0
2
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
Bank Card Delinquency Rate
Unemployment Rate
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Consumer Debt Service Burdens Decreasing
15
(Percent of disposable income)
12
9
6
3
0
1980
1984
1988
1992
1996
Non-mortgage
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2000
2004
2008
Mortgage
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Consumer Spending Trends in 2003
What’s Hot
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What’s Not
Recreational Vehicles
Musical Instruments
Cell Phones
Internet Services
Cable TV
Health Care and Drugs
Domestic Services
Gambling
Investment Counseling
Private Education
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Cars
Luggage
Video Rentals
Telephone Services
Intercity Transportation
Bowling
Pet Services except Vets
Brokerage Services
Dry-cleaning, Laundries
Barbers
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Consumer Spending Will Shift to Health,
Recreation, and Information
(Percent change, current dollars)
Medical Care & Products
Food & Beverages
Recreation Services
Computers & Software
Apparel
Home Furnishings
Vehicles & Parts
-4
-2
2002
0
2003
2
2004
4
6
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Spending on Energy: -3.4% in 2002, +11.1% in 2003, and -4.3% in 2004.
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Light Vehicle Sales Responded to Incentives
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(Millions of units)
16
12
8
4
0
1972 1976 1980 1984 1988 1992 1996 2000 2004
Cars
Light Trucks
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Auto Incentives Peaked in Late 2002
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(Incentives as a percent of manufacturers’ suggested retail price)
19
17
15
13
11
9
7
5
1990
1992
1994
1996
1998
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2000
2002
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Growth in Real Spending on Home Furnishings
and Apparel Will Slow in 2003
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(Percent change, 1996 dollars)
10
8
6
4
2
0
-2
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Home Furnishings
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Apparel
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Home-Building Will Gradually Decrease as
Interest Rates Rise
(Housing starts, millions of units)
2.4
2.0
1.6
1.2
0.8
0.4
0.0
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Single-Family
Multi-Family
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Allocation of Cash-outs from Home Refinance
(Percent of total, January 2001-June 2002)
Stocks
11%
Consumer
Spending
16%
Real Estate or
Business
10%
Taxes
2%
Home
Improvement
35%
Debt
Repayment
26%
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Median Existing Home Price Inflation, 1999-2002
(Annual percent change)
8.9 to 14.4
5.9 to 8.8
4.6 to 5.8
2.6 to 4.5
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Tourism: Dismal Present, Brighter Future
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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.
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Spending on Travel & Recreation Will Rebound
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(Percent change, 1996 dollars)
6
3
0
-3
-6
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
Intercity Transportation
Recreation Services
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The U.S. Economic Service: Comprehensive
Forecasts of the Consumer Environment
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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
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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
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Sales, prices, affordability, stocks, construction
Consumer sentiment, labor market indicators
We forecast 1,900 U.S. economic indicators
at a quarterly frequency, updated monthly.
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Consumer Spending Categories Forecasted
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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
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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
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Current U.S. Hispanic Market Studies
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Population and income forecasts
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Hispanic population, households, immigration
Labor force characteristics: educational
attainment, unemployment rates
Forecasts linked to Global Insight’s
national and regional forecasts
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U.S., States, Metro Areas, Counties, DMAs
Hispanic spending for custom
categories and store types
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Financial services: Credit cards, mortgage
lending, wealth management
Electronics & Appliances Stores
Entertainment
Automotive
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U.S. Hispanic Market: Growing in Size and
Purchasing Power
2002
2022
38.5 million
66.1 million
13.4%
19.5%
10.4 million
20.7 million
$51,500
$79,100
77%
82%
Adults with College Degree
11.2%
23.5%
Adults without High School Degree
42.3%
25.8%
Hispanic Population
Percent of U.S. Population
Hispanic Households
HH Disposable Income, 2002 $
Household Income, % of U.S. Avg.
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Hispanic Spending Will Outpace U.S. Total
(Percent change, constant dollars, 2002-12)
Total Consumption
Motor Vehicles & Parts
Furnishings, Electronics
Food & Beverages
Clothing & Shoes
Housing Services
Medical Services
Transportation
0
1
2
Total
3
4
5
Hispanic
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Consumer Markets Service
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Consumer Markets Monthly Briefing
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Forecasts and insights on consumer economic
drivers and purchase behavior
Coverage of 35 markets
Nominal and real spending, prices
Long-Term Household Demographics Forecast
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By Life Stage
By Age Group and Generation
By Income Class
Active Client Support
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Consumer Markets Monthly Briefing Coverage
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The Economy
Consumer Incomes
Consumer Finances
Retailing
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Autos
Apparel
Food
Home Goods
Leisure
Health Care
Personal Care
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Thank you!
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www.globalinsight.com
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