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The Great Recession Spending Decline

02/16/12

 

February 16, 2012 

American Consumers Newsletter
by Cheryl Russell, 
Editorial Director, New Strategist Publications
 


IN THIS ISSUE:

1. Hot Trends: THE GREAT RECESSION SPENDING DECLINE, NEW HOME PRICES PLUNGE, and much more
2. 
Q & A:  HOW CAN WE GROW THE MIDDLE CLASS? 
3. 
Cool Links:  
LABOR FORCE PROJECTIONS, THE AMERICAN FRESHMAN
4. Updated Reference Tools: AMERICAN INCOMES, HOUSEHOLD SPENDING, BEST CUSTOMERS, 14 WHO'S
BUYING REPORTS

To see Cheryl Russell's Demo Memo blog, click here.

  
1. Hot Trends  

 

The Great Recession Spending Decline

The economy seems to be perking up a bit lately, but the Great Recession pushed us into such a deep hole that we have a lot of climbing to do before we get back to level ground.  

 

Take a look at what the Great Recession did to household spending. The average household spent $48,109 in 2010. After adjusting for inflation, that was 8 percent less than in 2006--the year overall household spending peaked. How does this Great Recession spending decline compare with spending declines in the past?

 

The Bureau of Labor Statistics has been collecting annual household spending data since 1984, a time period that includes several recessions. Nothing compares with the Great Recession. During 28 years of household spending data collection, there have been year-over-year declines 12 times, which is a lot. Downturns in household spending are not exceptional. But three things are exceptional about the Great Recession decline:

  • The Great Recession spending decline is four years old, the longest spending decline on record. No previous decline lasted more than two years. 
  • The Great Recession spending decline includes the largest single-year decline ever recorded (a -3.5 percent drop between 2009 and 2010, after adjusting for inflation). Previously, the largest single-year decline occurred between 1989 and 1990 (-3.2 percent).  
  • The Great Recession spending decline is getting increasingly worse, starting with a small 0.3 percent slip between 2006 and 2007, followed successively by declines of 2.1, 2.5, then the record-setting 3.5 percent.  

The good news is that, statistically speaking, we are due for an uptick in household spending. The bad news is that, realistically speaking, we may not get one.

 

New Homes Prices Plunge

$225,800: That's the median sales price of all new single-family homes sold in 2011, according to the Census Bureau--16 percent below the 2007 peak of $268,900, after adjusting for inflation. Here is a look at 2011 median prices by region, along with their inflation-adjusted percent change from the year prices peaked in each region:

 

Northeast: $322,600 in 2011

Down 16% from 2006 peak of $386,100

 

Midwest: $201,000 in 2011

Down 20% from 2005 peak of $249,800

 

South: $210,300 in 2011

Down 11% from 2007 peak of $236,200

 

West: $255,400 in 2011 

Down 32% from 2006 peak of $376,800

 

Nationally, the number of new single-family homes sold in 2011 fell to an all-time low of 302,000 (with data going back to 1963). The 2011 sales figures were at all-time lows in the Northeast and West, and they tied all-time lows in the Midwest (tied with 2010) and South (tied with 1966).

 

Housing Bust Equalizes Prices

Everyone knows housing is a bargain in Ohio, where real estate prices are often well below $100 per square foot. Thanks to the housing bust, prices in many other areas of the country are an even bigger bargain. A new analysis by the Federal Reserve Bank of Cleveland shows that housing prices in Atlanta and Charlotte are now on a par with prices in Ohio's metropolitan areas. In Phoenix, Orlando, and Tampa, median sales price per square foot is even lower than in Cleveland or Akron.

   

Middle Age Stress

Strange things are happening to the nation's mental health. Typically, young adults are the most stressed out. Their life is in turmoil as they go to school, look for a job, find a marriage partner, and move from place to place. Now people aged 45 to 54 are the most distressed, thanks to growing economic uncertainty (starting well before the Great Recession).

 

In 2010, a substantial 12.2 percent of 45-to-54-year-olds reported experiencing 14 or more mentally unhealthy days in the past month, according to the CDC. Let's put that number in perspective: one in eight 45-to-54-year-olds feels like they are losing it as often as not. That figure is up from 10.6 percent in 2000 and 8.9 percent in 1993 (the earliest data available).

 

Other age groups are in trouble too. In fact, more than 11 percent of people ranging in age from 18 to 64 are in mental anguish at least half the time. Among people aged 65 or older, frequent mental distress afflicts a smaller 6.3 to 7.4 percent.  

 

Nonmetros Are Losing People

Nonmetropolitan areas of the United States lost people between 2000 and 2010, their first loss in 30 years. In 2010, only 50 million people remained in the nation's nonmetro areas--down from 55 million in 2000. The last time the nonmetropolitan population declined was in the 1970s.

 

Non-Hispanic Whites Decline in 15 States

In the nation as a whole, the non-Hispanic white population grew by only 1.2 percent between 2000 and 2010, according to census data. Behind the tiny increase is the fact that non-Hispanic whites declined in 15 states during those years. Here are the states with shrinking numbers of non-Hispanic whites, along with the size of the decline:

  • California: -5.4%
  • Connecticut: -3.5%
  • Illinois: -3.0%
  • Iowa: -0.3%
  • Kansas: -0.2%
  • Louisiana: -2.1%
  • Maryland: -3.9%
  • Massachusetts: -4.1%
  • Michigan: -3.0%
  • Mississippi: -0.3%
  • New Jersey: -6.2%
  • New York: -3.9%
  • Ohio: -1.9%
  • Pennsylvania: -2.2%
  • Rhode Island: -6.3%

The Fall of Print

Americans under age 45 are more likely to get their news from radio than printed newspapers, according to the General Social Survey. When asked from which source they get most of their information about current events, people under age 45 are more likely to say radio (10 percent) than newspapers (8 percent). Television is number one (48 percent), following by the Internet (31 percent).  

 

Slippage or Semantics?

Also from the General Social Survey, take a look at the percentage of Americans who call themselves middle class, by generation:

  • Older (65+): 60%
  • Boomers: 41%
  • Gen Xers: 40%
  • Millennials: 36%     

 

Construction Job Gains--and Losses

Some of the fastest growing jobs during the next decade will be in construction, according to the Bureau of Labor Statistics' newoccupational projections. The number of jobs in the Construction and Extraction occupational group will grow by 22 percent between 2010 and 2020--much faster than the 14 percent growth forecast for the labor force as a whole. Among the jobs projected to grow the fastest are carpentry helpers, brick masons, iron and rebar workers, and glaziers.

 

But there's a catch. The projected growth will not make up for the jobs lost during the Great Recession. The 7.7 million Construction and Extraction jobs forecast for 2020 will be 559,000 less than the 8.3 million of 2006. The good news is that they will be 1.4 million more than in 2010.

 

 

Real (U-6) Unemployment by State, 2011

There's the official unemployment rate (called U-3, which includes only people willing and able to work and who have looked for a job in the past 4 weeks) and there's the real unemployment rate (called U-6). The U-6 unemployment rate includes the officially unemployed, plus discouraged workers (people who have given up looking for a job), plus marginally attached workers (those who looked for a job in the past year but not in the past 4 weeks), plus people employed part-time because they can't find full-time work.

 

In 2011, according to the Bureau of Labor Statistics, the official (U-3) unemployment rate was 8.9 percent. The real (U-6) unemployment rate was a much higher 15.9 percent. Here are the five states with the highest real unemployment rates in 2011...

  • Nevada: 22.7
  • California: 21.1
  • Michigan: 18.8
  • Rhode Island: 18.6
  • South Carolina: 18.2

Voting by Income

Voting rates don't just rise with income, they rise in lockstepwith income. Overall, 59.7 percent of citizens aged 18 or older voted in the 2008 presidential election. Here are the 2008 voting rates by family income, according to Census Bureau data...

  • Under $30,000: 54.0%
  • $30,000-$49,999: 63.3%
  • $50,000-$74,999: 70.9%
  • $75,000-$99,999: 76.4%
  • $100,000-$149,999: 78.4%
  • $150,000 or more: 81.6% 

Burrowing even deeper into the data, the lowest voting rate is among 18-to-24-year-olds with family incomes below $30,000 (41.5 percent). The highest voting rate is among 65-to-74-year-olds with incomes of $100,000 or more (85.8 percent). Voting rates aren't everything, however. Numbers count. Despite the difference in voting rates, young low-income voters edged out old high-income voters at the polls, 1.7 million to 1.3 million.

    

These are a sampling of posts published in the past few weeks in Cheryl Russell's Demo Memo blog. Please send questions or comments to Cheryl Russell atdemographics@newstrategist.com


BET YOU DIDN'T KNOW

Among men who work full-time, percentage who earn $100,000 or more, by education:
  • High school graduate only: 4%
  • Some college or associate's degree: 8%
  • Bachelor's degree only: 24% 
   
2. Q & A

 

How Can We Grow the Middle Class?

      

Supply-side sociology may be the answer. This might sound crazy. After all, we know how well supply-side economics worked out. The supply siders told us that reducing barriers for producers--taxes and government regulation--would result in economic prosperity. What we got was the housing bubble, the Great Recession, a jobless recovery, massive deficits, a growing gap between rich and poor, and the disappearance of the middle class. As if that wasn't enough, the supply-side economists are now complaining about the burgeoning lower class (see, for example, Charles Murray's new book Coming Apart: The State of White America 1960-2010). According to Murray, people in the lower class don't spend enough time working, are unwilling to marry, and neglect their kids.

 

But consider this: Maybe the supply-side theory has been applied to the wrong field. It didn't work in economics, but it might just work in sociology. Supply-side sociology can solve the problem of the shrinking middle. Here's the way it works: reduce the barriers to the middle class and watch its ranks fill with people whose lives have been transformed by stable jobs that pay a living wage.  

 

Just think, marriage might make sense if lower class men had steady paychecks. Children might not fall behind if struggling parents were not expected to assume the duties of the public education system. College admissions would be more egalitarian if getting into college no longer depended on the leisure time and flexible schedules of the middle class as it runs the extracurricular marathon. Lower class men and women would uncover hidden talents if a college degree were no longer a requirement for most jobs. And while we're knocking down these barriers, let's remove two other onerous requirements for middle class life: owning a car and finding a job with health insurance.

 

Supply-siders unite! Tear down these walls:

  • Eliminate the college diploma as the gatekeeper to jobs that do not require specialized skills.
  • Remove parents from the equation for academic success, including homework helper, project manager, and tutor.
  • Ban extracurricular activities as a factor in college admissions, neutralizing the powerful influence of soccer moms on college acceptance.
  • Mandate access to efficient public transportation, freeing workers from the need to own (and maintain) a car to get to and from a job. 
  • Guarantee universal health insurance, providing the lower class with access to basic health care and sheltering them from ruinous medical bills.

By removing these barriers to middle class life, the lower class will supply the middle class with eager workers, confident parents, and stable families. Civic culture will be restored. The supply siders can then bask in the knowledge that, at last, their theory worked--in sociology.

 

By Cheryl Russell, editorial director, New Strategist Publications. Questions or comments, please contact

demographics@newstrategist.com  

BET YOU DIDN'T KNOW

Householders aged 65 to 74 spend (lose) more than twice as much as the average household on lotteries and gambling, making them the best customers of these businesses.

Source: Best Customers: Demographics of Consumer Demand
     

 3. Cool Research Links

 

To keep up-to-date on ever-changing demographics and lifestyles, check out these useful links.  

 

New Labor Force Projections    

The Bureau of Labor Statistics has released new labor force and employment projections, a task it undertakes every two years. Not surprisingly, BLS analysts see rising labor force participation rates among older Americans as boomers work well past the age at which their fathers retired.  

 

The labor force participation rate of men aged 62 to 64 is projected to rise from 55 percent in 2010 to 63 percent in 2020.The labor force participation rate of women is in the age group is projected to rise from 45 to 54 percent during those years.Despite the fact that boomers will be slow to retire, the BLS projects that the great majority of job openings in the next decade (62 percent) will come from the need to replace retiring workers.  

 

The American Freshman Survey

The American Freshman survey is one of the greatest resources available to marketers whose target is young adults. Every year since 1966, UCLA's Higher Education Research Institute has surveyed thousands of freshmen at hundreds of colleges to determine what they think, what they have done, and what they plan to do next. The 2011 survey, released in January, is based on the responses of 203,967 freshmen at 270 institutions that grant a bachelor's degree.  

 

The latest results show that the majority of freshmen are going to school within 100 miles from home, are attending their first-choice school, and are using loans to pay for some of their expenses. Although 71 percent of freshmen rate themselves above average in their academic ability, only 38 percent think their computer skills are above average. 

 

 

BET YOU DIDN'T KNOW

Householders under age 25 spend only $1,200 a year on entertainment, less than any other age group.

      
4. Meet Your Customers   

 

Who buys? What do they buy? How much do they spend?

Get the dollar-for-dollar answers you need to succeed in today's tough economy from these one-stop resources

 

The annual spending data in Household Spending: Who Spends How Much on What, the first edition of which was published in 1991, allow you to compare and contrast spending by a host of demographic characteristics so you can determine market potential and the dollar size of each market, identify your best customers, and understand which segments account for the largest share of spending. New to the 16th edition are intriguing results of how the nation's spending habits have changed because of the Great Recession, with comparisons of spending trends between 2000-06 and 2006-09.

 

American Incomes: Demographics of Who Has Money has the 2010 income data you need to stay competitive in an unpredictable economy. It is a one-stop resource for understanding the economic status of Americans--how the incomes of men and women are changing, which households have money left over after paying for necessities (valuable discretionary income figures calculated just for this book), who is wealthy, and who is poor. New to the 8th edition are detailed estimates that show trends in discretionary income and spending. And the chapter on wealth shows the effects of the Great Recession on household assets and debt.

 

In the new 8th edition of Best Customers: Demographics of Consumer Demand, experts and novices alike can see at a glance who spends the most and who controls the largest market share--often surprisingly different--on over 300 products and services organized into 21 chapters that focus on entertainment, groceries, transportation etc.--everything a consumer might buy. Based on unpublished data--you can't find this on the Internet--from the Bureau of Labor Statistics' invaluable Consumer Expenditure Survey, Best Customers brings you insight into household spending by householder age, income, household type, race and Hispanic origin of householder, region of residence, and educational attainment.

 

The 14 volumes in the new Who's Buying Series, which can be purchased individually or as a set, gives you the big picture about consumer spending by age, income, household type, race and Hispanic origin of householder, region of residence, and education. Each volume focuses on an individual product category, ranging from apparel and beverages to restaurants, consumer electronics, and travel. To round out the spending picture, you also get who-are-the-best-customers analyses of the data. New to these editions are valuable detailed comparisons of spending before (2000-06) and after (2006-09) the Great Recession.


For your convenience, all of New Strategist's titles are available as searchable single- and multiple-user pdfs linked to spreadsheets of each data table so you can do your own analyses and create PowerPoint presentations.

BET YOU DIDN'T KNOW

The average household spends more on video games than it does on books. 

Source: Who's Buying Entertainment         


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