For the full year of 2008, U.S. jewelry sales are expected to be about even with 2007. But if you listen to jewelers, the end of the world is at hand. What those hand-wringing jewelers don’t understand is that American shoppers will spend roughly $64-65 billion on jewelry this year. Further, what most of those despairing jewelers don’t understand is that they are part of the problem, not part of the solution.

 

Smart jewelers have adjusted their fixed costs. Smart jewelers have implemented a marketing plan to bring in new business in tough times. Smart jewelers are taking advantage of vendors’ great deals. Smart jewelers are looking at fire-sale real estate deals. Smart jewelers are positioning their business for the economic recovery.

 

The Media Gets It Wrong Again

Every day, we see a new headline in the paper about how bad consumer spending is in the U.S. Much of the time, the reporters get it wrong. In fact, it is wrong so often that the editor of a jewelry share-group newsletter advised his members to “stop listening to the TV and stop reading the newspaper.” We share his sentiment, too, some days.

 

In February, U.S. retail sales were about $380 billion, about flat with the prior year. How much is $380 billion? If February retail sales were a country’s annual Gross Domestic Product (GDP), it would put American’s retail spending in February (one month) just above Belgium and just below the Netherlands’ annual GDP. They are the 16^th and 17^th largest economies in the world. In other words, in just one month, American consumers spent an amount equivalent to the annual GDP of Belgium and the Netherlands. As a reminder, GDP includes spending by consumers, businesses, and the government.

 

Further, retail sales are just under half of Americans’ total spending. They also spend on services, they make monthly payments on their home mortgage, and they have other expenditures that are not retail. For the month of February, the spending of all American consumers was an estimated $792 billion. This is as much as the annual GDP of Brazil, the tenth largest economy in the world. Again, this comparison looks at Americans’ monthly spending versus the annual GDP of Brazil.

 

It is patently false to say that Americans have stopped spending.

 

Guest Commentary: Cheryl Russell

Recently, Cheryl Russell, editorial director of New Strategist, apparently had enough of erroneous information in the newspaper. Recently, Cheryl published an article titled “Last of the Big Spenders” in which she took to task the Associated Press for its “abysmal quality of reporting the trends in the consumer marketplace.”

 

Her company, New Strategist, publishes a free monthly newsletter as well as demographic information on the American consumer (www.newstrategist.com). You can sign up for the newsletter and purchase the company’s books on its website.

 

With her permission, we have reprinted the article below. You may sign up for a free subscription to the American Consumers Newsletter by going to the website.

 

Last of the Big Spenders

By Cheryl Russell, editorial director, New Strategist Publications

 

"Consumers stopped buying pretty much everything," commented the Associated Press in a recent news story about the 0.6 percent decline in February retail sales. This bit of hyperbole about the $380 billion Americans spent at retailers last month is yet another example of the abysmal quality of reporting on trends in the consumer marketplace.

 

To put it bluntly, reporters just do not get it. They err – out of confusion or laziness – when they explain macroeconomic trends as if those trends describe the behavior of you and your neighbors. It is called anthropomorphizing, and it can be a harmless way of putting a human face on dry statistics. Not in this case. By anthropomorphizing macroeconomic trends, reporters are misleading the public about the real dynamics of the consumer marketplace.

 

For years, the people who bring us the news have been telling us what big spenders we are, when all along we have been cautious consumers. Now they are telling us what scrooges we are, when we are the same cautious consumers we have always been. How did reporters get so far off track?

 

It all started decades ago with the rise in personal consumption expenditures (PCE), a macroeconomic indicator. PCE is one of those dry statistics – the sum of all spending on consumer products and services in the United States. Between 1984 and 2006, PCE more than doubled after adjusting for inflation. Rather than explain the real reasons for the rapid growth in PCE, reporters simply anthropomorphized the trend and called Americans big spenders. In fact, average household spending grew by only 14 percent between 1984 and 2006, after adjusting for inflation – less even than the gain in real median household income. And the spending of baby boomers (the ones usually accused of being the most profligate spenders) increased by an even smaller 4 percent, according to the Consumer Expenditure Survey. This modest rise in spending is even more impressive when you consider the 59 percent increase in the price of a new single-family home during those years, the 100 percent increase in the cost of college, or the 101 percent increase in out-of-pocket health insurance expenses

 

Clearly, the average American has been pinching pennies all along. What accounts, then, for the ballooning PCE? To answer the question, reporters needed to look under the hood of the macroeconomic trends and discover what drove the engine. If they had bothered to look, here is what they would have found:

 

• The population is growing. The United States is one of the fastest growing developed countries in the world, so it is only natural that aggregate consumer spending will rise each year along with the population. This does not mean you and your neighbors are spending more, however.

• Boomers filled the peak-spending life stage. Over the past two decades the enormous baby-boom generation filled the 35-to-54 age group, the peak spending years. Consequently, the number of affluent households reached record levels, the housing market exploded, and the nation's aggregate spending soared – even as individual households held their spending in check.

• The price of stuff plummeted. The average American home has multiple television sets, closets full of clothes, and a kitchen full of appliances. Americans have more stuff because stuff is cheap. Televisions, video recorders, microwaves, dishwashers, computers, cameras – if the product uses an electrical cord or a battery, chances are it costs a fraction of what it did two decades ago. Television sets, for example, cost 85 percent less than they did in the 1980s. Falling prices have affected more than electronics. Toys cost 32 percent less, and clothing is less expensive. Just because we have more does not mean we are spending more.

• Credit card payments ballooned. Consumer borrowing has grown handily over the years, but not because the average American is drowning in debt. Consumers are paying with plastic as a convenience, not an easy-money scheme. According to a Pew Research Center survey, just 31 percent of consumers carry a balance on their credit card bill. Among those who carry a balance, the median amount owed is a modest $2,200, reports the Federal Reserve Board's Survey of Consumer Finances.

The real story behind consumer spending is this: Americans did not spend foolishly when times were good. And their skill at pinching pennies may help soften the landing in the bad times that lie ahead.

 

If you have any questions or comments about the above editorial, e-mail New Strategist at demographics [at] newstrategist [dot] com.