Archive for the ‘consumption’ category

Improving Household Net Worth and Cash Flow Bode Well for Spending

April 1, 2013

Improvements in the balance sheets and cash flow of households along with continued if not robust improvement in the labor market bode well for consumer spending  as the year progresses, helping the economy overcome the negative impacts of  payroll and other tax increases.

Home equity is a strong driver of the buying power and spending decisions of households.  Home prices are rebounding across the country and even New Hampshire is beginning to show some strengthening according to Core Logic’s Home Price Appreciation Index.  Appreciation in NH remains below a majority of states and well below the 15% suggested by the industry in the state.

January HPI

While home prices are still off from their 2006 peak, the rise in home prices has raised homeowners’ equity $1.6 trillion over the past year. This is the second largest nominal gain on record since 2005 when homeowners’ equity was up $2.0 trillion. In percentage terms, owners’ equity as a share of household real estate rose to 46.6% last year compared to 40.5% in 2011—the previous cyclical peak was 59.6% in 2005—and an all-time record low of 37.3% in 2009.

Private retirement and pension accounts represent a much smaller component of the net worth of households but they are key contributor to households’ sense of  financial “well-being” and a contributor to the “wealth effect” that impacts household confidence and their willingness to spend.

Private Pensions

The equity of homeowners is the largest contributor to the improvement in household net worth but the value of  the private pension accounts of households along with the rise in the value of the stock market are adding to consumer’s willingness to spend.  Lower interest rates, lower levels of debt, and improvements in wage and salary income are also improving the cash flow of households.  In combination, the outlook for consumer buying power and spending in 2013 looks like it could be stronger than the growth in the underlying economy would suggest.

Household Net Worth

E-Commerce’s Small % of Sales Has Big Implications

March 21, 2013

Total retail sales increased modestly last Christmas season (4.0% higher in QIV than in QIV  2011) while e-commerce (Internet) retail sales  increased 15.6% during the same time period.   E-commerce sales are still a relatively small percentage of total retail sales but some of that is a function of the percentage of consumer goods that will never be sold over the Internet (don’t look for free shipping and returns on gasoline or boneless chicken soon).  E-commerce now accounts for about 5.4% of retail sales, a new record.

e commerce sales

E-commerce sales are an interesting issue for a lot of reasons. It portends heavyweight policy battles over the taxation of e-commerce and brick and mortar sales as well as policy debates over taxing the source or destination of sales.  It also has longer-term implications for the demand for commercial real-estate, the usage, mix and look of downtowns, malls, and probably the nature of a good percentage of our socialization and interactions, but that won’t be apparent for some time.   For someone who doesn’t like to shop (and even for those who do), e-commerce essentially reduces the cost (time and travel etc.) of shopping and comparison shopping to near zero, so it has the potential to increase the time available for other activities.   That could be a good thing, but if it reduces the time we spend walking through our downtown or otherwise interacting with our communities so that we can get to know a thousand more people infinitely less well on-line, I ‘m not sure it makes that much of a contribution.   To the upside, e-commerce has given a lot of us yet another  reason not to try-on the clothes or shoes we buy.

The data in the chart above shows that while e-commerce sales dipped during the recession, they continued to increase their percentage of total retail sales.  That means they dipped less than overall retail sales.  There are tremendous long-term implications for the growth in e-commerce and that  prompts more than a few questions in my mind:

  • Are consumers especially motivated to comparison and price shop on-line during recessions or in weaker economic times?  Does a weaker economy convert more sales to e-commerce?  I look at state level data and use quarterly industry earnings data to estimate state-level retail sales in some states and noted that NH’s retail sales fell less than neighboring states during the recession.  A result I attribute, in part, to the 5% or greater savings due to NH’s lack of a retail sales tax, that consumers may be even more motivated to realize during a recession.
  • Can the most attractive elements of e-commerce be combined with brick and mortar retailing to “double the pleasure”.  Which retailer or type is most likely to find the formula?
  • How much different are the demographics of on-line buyers than are those of traditional retailers?  I assume for the most part e-commerce buyers have somewhat higher incomes and are likely to be younger.  If income were the primary difference I would expect that e-commerce sales would probably decline less than total retail sales.  If age is a significant contributor, how much will demographic trends matter?  Its been a while since I’ve been in a mall, have  teenagers forsaken them for on-line social gatherings?
  • How are sales trends affected by differences in the percentage mix  of products sold on-line and at bricks and mortar stores. As an example, furniture stores and home furnishings sales were pummeled during housing market drop and recession and I have to think those items are less representative of e-commerce sales.  Will shopping downtown now mean going to an internet cafe?
  • Is there an e-commerce substitute for “recreational shoppers”?

These are just a few of the questions I will never have time to investigate.  Recent trends are  probably a combination of these factors and more and  no doubt someone who looks and writes about  these trends more thoroughly has answers where I have only questions.  The comment lines are now open.


<span>%d</span> bloggers like this: