The ultimate measure of consumer confidence, particularly during unsettled times, is driven by their pocket book. What money do they have, what bills do they have, how do the two match and how do they feel about their ability to keep their equilibrium.
So, when you are thinking about the near-term prospects for the economy, run all the news you see through that filter of self-interest and well-being. You should be able to guess how consumer confidence will be trending at any single moment.
The best way to feel the squeeze is to look at just how much variable cost an average consumer has in their monthly budget. Yesterday, I shared a chart from Column Five Media that showed how the distribution of consumer spending has shifted over the past 100 years. Today, I’d like to share a chart that digs in to exactly what the consumer of today spends money on. (These Column Five folks make GREAT infographics.)
Fixed costs are close to 70% of total expenses for the average consumer. These are expenses, like housing and transportation costs, that can’t be changed without a significant life restructuring. Truly discretionary expenses, like entertainment, gifts to charity and eating out, amount to close to 18% of total expenses.
Here’s what that means in real dollars:
- The average consumer takes home about $4,205 each month, after taxes.
- Housing, transportation, healthcare and insurance costs $2,820 each month.
- Of the remaining $1,385, $616 goes to food, education and assorted items for personal care.
There’s not much margin for error. A downturn in hours, a cut in salary, a job elimination, an expected expense can put this average U.S. Consumer Unit in a bad spot.
The reality of this math puts the results from BIG Research’s continuing survey of Consumer Intentions and Actions in context. In their January briefing, the analysts at BIG Research paint a picture of a consumer who is becoming warily confident, but who does not intend to stop their new habits designed to make them more financially stable.
From the report:
While the current double-digit U.S. unemployment rate is likely keeping consumer sentiment and spending depressed, consumers remain relatively positive about the employment outlook for the first six months of the New Year…in January, 31.0% indicated “more” layoffs over the next six months, down just over a point from last month (32.5%) and nearly half the reading from a year ago (59.9%). Close to one in two (45.8%) contend that layoffs will remain the “same,” stable from December (45.7%) and rising from January ’09 (30.5%). Nearly one in four (23.2%) are predicting layoffs to decline, up from 21.8% a month ago and more than double the figure recorded a year ago (9.6%).
Consumers also retain their optimism with their own job security this month…4.4% are currently concerned about becoming laid off, flat from last month (4.6%), but lowering by 50%+ from January ’09 (9.6%).
It looks like many consumers vowed to rein in spending and control debt in 2010…nearly two in five (37.9%) are prioritizing paying down debt over the next three months, rising from 34.4% in December. Almost as many (37.0%) contend they will decrease overall spending in Q1, up more than five points from last month (31.6%). Consumers are also increasingly focused on adding to their savings (30.0%) and paying with cash more often (25.7%).
Within the context of this wary stability, one can understand the visceral resentment of the bailout of the financial industry, the concern about home values, the despair that creeps in when the media bleakly reports the future and the desire for clear and decisive leadership from the government.
None of those external factors is going to change, so we should expect a wary consumer and a volatile body politic for a while yet.
- The changes in consumer spending over 100 years http://bit.ly/7q3Lba 16:00:03
- Some observations about why Doug Manoni should be successful at Source Media http://bit.ly/4TCufA 15:57:50
- The economic stimulus program was off target in simple ways, Harvard's Feldstein writes http://bit.ly/6K1NKg 15:55:06
- We got cars, we got fat http://post.ly/JfP4 15:54:54
- RT @NickKristof: David Carr makes a solid argument for the new NYT policy of charging for extensive website use http://nyti.ms/4nsPXf 14:48:43
- RT @TamiMcCarthy: David Letterman gets personal, hits Jay where it hurts (videos): http://www.mediaite.com/xemsj SK (via @mediaite) 14:48:09
- Pew Research reports on the new Magna advertising forecast. Declines are stemming, Q1 is the bottom. http://bit.ly/6C1I85 14:47:26
- Interesting concept of meta-stories. Your social graph produces stories every day. Use them. (via MediaShift) http://bit.ly/8mVFJG 14:46:07
- DigitalTonto weighs in persuasively, again, that newspapers are dead but print isn't. http://bit.ly/8BaJxy 14:44:12
- Here is Jarvis' article about the Right to Link. Baloney. We don't have the RIGHT to anyone else's content. http://bit.ly/7r2cCs 14:42:39
- My good friend Doug Manoni becomes the CEO at SourceMedia. Congrats! (via PaidContent) http://bit.ly/6zuGEc 14:39:26
- PaidContent reports on the news from The NY Times that they'll start charging online…kinda, somehow. http://bit.ly/7sf8Re 14:38:21
- Econobrowser ruminates on Mankiw's thghts abt inflation & decides there's little near-term risk. http://bit.ly/4oH3jE 14:34:14
- Alan Patrick does a really interesting breakdown in response to JeffJarvis' comments on the link economy. http://bit.ly/7LChIe 14:19:39
- How do social networks need to improve data & usage trends in order to increase advertising value? (via BroadStuff) http://bit.ly/5GNGHT 14:16:38
- President Obama, uber-daddy (via Esquire) http://bit.ly/6ujYep 14:03:06
- A transcript of an interview with Warren Buffett abt things like the Fed, earnings & other things. (via Clusterstock) http://bit.ly/4LBy6X 14:02:13
What a great chart: The change in consumer spending over the past 100 years. It tells you about what’s shifted, what’s important in the economy and how much money we’ve had left over to play around with.
To see more of this kind of infographic, go check out Column Five Media.
And, it’s amazing how much more we spend on getting from place to place and having a place to live than we once did, and how much less we spend on food. And, as a nation, we’re teetering on the edge of statistical morbid obesity. There’s a relationship there somewhere.
Congratulations to my friend and former colleague Doug Manoni, who was named CEO of Source Media this week.
Doug and I worked at Cowles Business Media through the better part of the 1990′s. At the end, Doug was my CFO.
He’s an interesting study for people who wonder about the future of business-to-business companies. Doug is a logical and sensible guy who understands that everything in the end comes down to cash: Who will pay you and who do you have to pay? He’s intellectually curious and enjoys interacting with new people. He doesn’t get overwhelmed by the things he doesn’t know and he’s grown more and more confident over the years in his own decisions.
This personality has helped Doug develop a bias towards extending diversifying his businesses to incorporate higher value content. He’s made this transition twice before from traditional advertising-based businesses successfully. I’m sure he’ll manage to do it again in this role.
[A note: the Chairman of Source, Marty Maleska, is member of the NCI board.]
Martin Feldstein, the Harvard economist, today in the Wall Street Journal offers an attractively succinct and common-sense assessment of the effect of Obama administration programs on the economy.
A stimulus was needed, Feldstein writes. The problems was that it had the wrong emphasis.
The result was an unnecessarily large increase in the national debt for a very modest rise in gross domestic product, with too much emphasis on redistributing income and preserving public-sector jobs and not enough on raising economic activity. Only about one-fourth of the nearly $800 billion will be used for government spending that adds directly to GDP.
Simply focusing on the right things would have had much more impact, Feldstein says.
The flaw in the stimulus package wasn’t, as some say, that it was too small. It was that it was poorly targeted. Instead, Congress and the president could have gotten more stimulus from accelerating the repairing and replacing of equipment in the civilian and defense sectors. Long-term reductions in marginal tax rates of the type used by Presidents Kennedy and Reagan would also have been better than temporary tax cuts that have no positive incentive effects.
Feldstein doesn’t offer a solution, except to suggest that administration needs to shift its focus. The Congressional Budget Office recently completed a paper showing the impact different job stimulus initiatives could have on employment.
The chart to the right is from the director of the CBO’s blog and shows which initiatives would have the most significant impact on employment. A big impact would be from reducing payroll taxes. This effectively reduces the cost of having an employee. In theory, this is good for the government, for while the company would contribute less in tax, this decline would be offset by an increase in personal income tax.
But, in a faint echo of Feldstein’s comments, the CBO director has a caution. We’ve already run up a big bill with the stimulus programs and those bills have a price.
CBO concludes that further policy action, if properly designed, would promote economic growth and increase employment in 2010 and 2011. Different policies vary in cost-effectiveness as measured by the cumulative effects on GDP and employment per dollar of budgetary cost and in the time patterns of those effects. Moreover, despite the potential economic benefits in the short run, such actions would add to already large projected budget deficits. Unless offsetting actions were taken to reverse the accumulation of additional government debt, future incomes would tend to be lower than they otherwise would have been.
Interpublic’s Magna forecast unit reversed course on a downbeat projection and now calls for an increase in ad spending in 2010, bolstered by the Olympics and local elections.
Here’s the chart. It’s a sight for sore eyes.
MediaPost has a thorough story on the dynamics driving the forecast. Local is forecast to continue to decline, off 5% in 2010 after a 22% decline in 2009. Newspapers will lose another $2.6 billion in local ad spending, Magna projects.
On the national front, magazines will be down again as well, off 7% versus a 20% decline in 2009.
Online advertising should experience a rebound in 2010:
* Direct online ad spending will jump 12.2%
* National online ad spending will grow 4.0%
* Local online spending will grow 3.7%
The long-term outlook has improved as well. Brian Wieser, director of Global Forecasting:
Our longer-term forecasts have also been modestly increased to reflect higher confidence in economic recovery. MAGNA now forecasts total normalized media supplier advertising revenues will rise by a compounded annual growth rate of 2.3% between 2010 and 2015.
Here’s the complete forecast, broken down by segment.
- Frick & Frack ruminate & give us a lesson on the present day nature of political discourse http://bit.ly/8d6vy0 11:09:45
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- The change in consumer consumption reflects a long-term shift in U.S. demographics related to aging http://bit.ly/5eqypq 11:06:49
- A point in the displacement of Retail Sales by E-Commerce: Holiday Season 2009 http://bit.ly/6KUONS 11:06:03
- Household income trends, the Value of Money & the relevance of Gen Y's experiential approach to life http://bit.ly/8XAICg 11:05:42
- 2009 was a very bad year for magazines http://bit.ly/8t5aNX 11:05:04
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