Big spenders - household and discretionary income - includes related article on Bureau of Labor Statistics Consumer Expenditure Survey

American Demographics, August, 1997 by Peter K. Francese, John Rogers

Americans spend more money than anyone else on the planet. Every day, the average U.S. household spends almost $90 on a vast array of goods and services. This may not sound like much, but it adds up to trillions of dollars a year. For those who provide these goods and services, even a small uptick in their category can mean great fortune. A downturn can mean Chapter 11. For example, by shifting 1 percent of spending from food away from home, Americans spent $11 billion less in restaurants and other nonhome places in 1995 than in 1985.

The ten years between 1985 and 1995 were business as usual. That is to say, they were as volatile and unpredictable as any in the 20th-century consumer marketplace. That decade saw the market crash in 1987, the harsh recession that followed, and the sustained period of economic expansion we currently enjoy. Throughout it all, Americans kept spending; $32,300 per household in 1995, up 37 percent from 1985 in current dollars, according to the Bureau of Labor Statistics Consumer Expenditure Survey (CE).

Despite all you hear about rising consumer debt, we didn't outspend our income gains. Even with the wage stagnation and recession of the early 1990s, household incomes rose faster than spending over the 1985-95 period. Average before-tax income of the consumer units tracked by the CE survey was up 47 percent over the ten years.

Inflation in the 1985-95 period was not as high as in previous decades, but it's still a factor. A household needed $142 in 1995 to buy what $100 would have bought in 1985, according to the Consumer Price Index (CPI). Even if you consider the traditional CPI an overstatement of true cost-of-living increases, it's clear that changes in income outpaced those in spending between 1985 and 1995. In fact, average inflation-adjusted spending dropped 3 percent, while average after-tax income rose almost 5 percent. American households went from spending virtually every dollar coming in to spending an average of $1,600 less than after-tax income in 1995. An aggregate of $160 billion or so not spent might be a partial explanation for the leap in the stock market. But these savings are still chicken feed compared with what Americans spent.

Overview

The U.S. had 103 million consumer units (roughly equivalent to households) in 1995, up 13 percent from 92 million in 1985. They spent an aggregate of $3.3 trillion in 1995, up $1.2 trillion from 1985. Here's another way to look at it: Americans' current weekly spending could more than buy the entire annual economic output of Ireland or New Zealand.

Who spends money, and on what? The short answer to the first question is "everyone," but certain groups dominate. Households with $50,000 or more in annual income accounted for 44 percent of all consumer spending in 1995, although they are only 25 percent of households.

Higher-income households have not gained spending share since 1985, but middle-aged households have. Those headed by people aged 35 to 54 account for 41 percent of households, but because they have higher-than-average incomes, they control half of consumer spending. And because younger baby boomers have been moving into this age group for the past decade, they boosted its spending share from 42 percent in 1985.

What are people buying? Food, shelter, and clothing--and a lot more. Shelter takes a big chunk, but altogether the three "necessities of life" comprise just half of our total spending. In all fairness, getting around should be added to the list of necessities; these days, we spend more on transportation than we do on food. This would bring down our level of so-called discretionary spending to 30 percent of the total. Yet even this remainder includes things most of us deem necessary, such as health care, education, and entertainment. Likewise, much of the money we spend on food and other "necessities" is pretty discretionary. (See "Spending at Our Discretion," page 2.) The sections that follow describe spending trends for all major categories.

Place to Call Home

Americans devote nearly one-third (32 percent) of total expenditures for the privilege of a roof over their heads, up 2 percentage points from 1985. In inflation-adjusted dollars, housing expenditures jumped 29 percent over the decade, compared with the 3 percent decline in total spending.

As we would expect, homeowners spend a lot more than renters. For every dollar an average renter spends on housing, the homeowner pays about $1.50. But renters get the short end of the stick. Total renter expenses have risen 32 percent in real terms since 1985; the total cost of owned housing is up only 26 percent. Renters in 1995 spent 36 percent of their after-tax income for a place to live, versus 29 percent for homeowners.

Housing costs have several major components: shelter (mortgage or rent, property taxes for owners, and property maintenance costs); utilities; furnishings and equipment; household operations (services such as child care and lawn care); and housekeeping supplies, such as detergent and postage.