Consumer discretionary spending is defined as the sector of the economy where businesses sell goods or services to people that are not essential to life. This often includes a majority of retailers, media and consumer services companies, automobiles, and other recreational vehicle industries and the parts suppliers that support these vehicles.
Consumer spending accounts for about 70% of the American economy every year and it has been this way for well over a decade.
Consumer Discretionary Spending
Although consumer spending includes the necessities, it is very evident to see that the American economy is dependent upon the consumer. If people don’t purchase items, then businesses cannot operate. If businesses don’t operate, then people don’t have jobs. That’s why spending is such an important part of life in the US and around the world. When more money is earned, more money is typically spent, and that’s what fuels every economy.
- In 2009, which is the last year that the BLS has release comprehensive statistics, Americans spent $1.13 trillion on discretionary purchases each season. It is estimated to have been $1.77 trillion in Summer 2013.
- The largest percentage of discretionary purchases tends to fall into the category of gifts, which account for 2.2% of the total purchases made.
- Tobacco still accounts for about 1% of total American discretionary spending, despite numerous health warnings about the practice.
- Nationwide discretionary spending was estimated to total $1.77 trillion in the Summer of 2013.
It’s true that Americans have money to spend and aren’t afraid to do so, but times are slowly changing in this regard. When taking a look at the total income picture of the average American household, about 31% of the total income an American brings in will go to make a mortgage payment or pay rent. Groceries account for another 10% or so of the income and utilities are about 5% of total income expenses. The average American make only pay about 3% on their health care costs, but the overall health care industry accounts for another 18% of the GDP. What does this mean? That Americans are paying more, getting less, and not able to save the same amount of money that they once could.
How Much Do Americans Actually Spend Right Now?
- In July 2014, the average American family spent $94 per day in order to support their current lifestyle.
- 45% of Americans state that they’re spending more today than they did just one year ago.
- May 2014 was a 6 year high for average daily spending, reaching $98 per day.
- In comparison, the average daily spending by an American household is the equivalent to one month’s pay in other regions of the world.
- The Western United States spends the most annually in total expenditures, paying out over $56k per year.
- Hispanics represent nearly 11% of the total national discretionary spending that occurs in the US annually, although this trails their overall population share.
- The wealth gap between whites grew by over 20% during the Great Recession, with whites losing an average of 11% of their wealth, but minorities losing over 30% of their wealth.
- Hispanics represent 10.9% of nationwide discretionary spending.
- Consumer confidence levels have slowly been on the rise over the last three years.
With inflation costs hitting prices and companies keeping wages static, it is becoming easy to see why more families than ever before are living paycheck to paycheck. There just isn’t any room to save up for an emergency fund, much less have enough to retire in 20 years or so! Until changes in the societal structure of the country can actually take hold to begin reducing the wealth gaps, the gender wage gaps, and other payment issues that are occurring in American households, the consumer discretionary spending that fuels the country’s economy will continue to be stagnant at best, consistently putting people at risk. With minorities having a huge wealth gap when compared to Caucasians and with minorities expected to take on a growing percentage of the population, consumer discretionary spending could begin to stall out over the next decade, which would mean the US economy would also begin to stall out once again.
What Is The Outlook For Consumer Discretionary Spending?
- The monetary policies of the Federal Reserve have kept interest rates and bond yields low, which means economy improvements could make it difficult to unwind assets and would cause financial disruptions to US households.
- If the Chinese economy fails to grow, then it is entirely possible that consumer discretionary spending could be affected in either positive or negative ways based on manufacturing and imports from this country.
- The regional crisis between Russia and Ukraine will have a positive impact on domestic consumer prices for groceries, but increase discretionary spending in areas such as fuel.
- Ongoing borrowing authority issues at the US federal levels can impact the security that Americans feel in spending, thus negatively affecting the discretionary spending statistics.
- Despite these ongoing issues, consumer confidence rates are near historical highs, nearly 30 points higher than during the Great Recession months.
- The amount of disposable personal income of Americans is also at historic highs right now, reaching over $13 trillion total.
- The economic optimism index is near historic lows, however, at 44.5, which means discretionary spending is likely less than it could be.
Why hasn’t the American economy really taken hold after the Great Recession of 2008-2009? It is because American households aren’t confident enough to begin spending again. They are limiting their purchases as much as possible so they can try to get off of the paycheck to paycheck routine. This is unfortunately not being done, however, and this is creating problems that are rippling through every class except the wealth class – especially in the US. Without any security for income and without cost of living adjustments coming, some families are actually making less money today than their counterparts did 30 years ago. That makes it difficult for an economy to grow and naturally limits the amount of consumer discretionary spending that can happen.