US Household Consumption

1
US Household Consumption

• Ajay Kumar Garg
• Alexander Frutier
• Karla Valverde
• Mary Whitmarsh

2
Agenda

• Overview of key indicators
• Consumer habits
• International Comparison
• Analyzing the impact on GDP BOP
• Future Analysis with different scenarios
• Conclusion

3
Overview of key indicators

• Personal Income/ Disposable Personal Income
• Household Consumption Expenditure
• Household Savings

4
Personal Income / Disposable Personal Income
5
Household Consumption Expenditure
6
Household Savings
7
Agenda

• Overview of key indicators
• Consumer habits
• International Comparison
• Analyzing the impact on GDP BOP
• Future Analysis with different scenarios
• Conclusion

8
US Consumer Behavior

• Behavioral characteristics
• Household debt as of disposable income
• Banking loans breakdown
• Social Economic environment
• Relationship with economic indicators
• Unemployment rate
• Inflation rate

9
Household debt as a of disposable income
10
Banking loans breakdown
11
Social Economic Environment

• Advertisements
• The American receives 3,000 advertisements per
  day
• Corporate marketing expenses reach 62bn a year
• Economic Establishment
• Government Spending in social security
  (healthcare and education, etc) has reached an
  average of 35 in the last ten years, well below
  than that of France (52) and Italy (55)

12
Consumption vs. Unemployment Rate
13
Consumption vs. Inflation Rate
14
Agenda

• Overview of key indicators
• Consumer habits
• International Comparison
• Analyzing the impact on GDP BOP
• Future Analysis with different scenarios
• Conclusion

15
Household Saving Ratios - Comparison
16
Cards per thousand inhabitants
17
Agenda

• Overview of key indicators
• Consumer habits
• International Comparison
• Analyzing the impact on GDP BOP
• Future Analysis with different scenarios
• Conclusion

18
Analyzing the impact on GDP BOP

• Y C(72) I(14) G(19) X(10) M(15)
• Consumption if sustained by Imports leads to a
  negative impact on BOP
• Consumption if sustained by Domestic production
  would lead to increase in GDP
• US economy a unique case

19
Consumption driving the economy
Household Consumption
Increase in Imports
Growing Domestic Production
Asian Countries the Major Exporter to US
Leading to higher Trade deficit
Growing GDP
US Current Account deficit financed by Asian
Economies
20
Analyzing the impact on GDP
21
Consumer Expenditure Vs Trade Deficit
22
Percentage change in Consumer Expenditure Vs
Imports
23
Findings on Impact on GDP BOP

• Consumer Expenditure is composed of 80 by
  domestic production and 20 by Imports
• A percentage change in Consumer Expenditure would
  bring around .72 change in GDP and 3.5 change
  in Imports
• GDP follows Consumer Expenditure in the upward
  trend while Consumer Expenditure follows GDP
  during the downward trend
• Imports follow Consumer Expenditure more closely
  in both the trends

24
Agenda

• Overview of key indicators
• Consumer habits
• International Comparison
• Analyzing the impact on GDP BOP
• Risk factors affecting consumption
• Conclusion

25
Risk factors affecting consumption

• Further Dollar depreciation?
• Possible US interest rates increase cycle ?
• Future retirement financing issues due to an
  aging population ?

26
Further US Dollar Depreciation ?

• If the stays on a bearish trend, one major
  effect would be to increase import prices in the
  USA
• According to estimates, 20 to 25 of total goods
  and services consumed in the US come from abroad
• Therefore an increase of imported goods and
  services prices in USD will tend to reduce
  overall consumption, everything else being equal.

27
Interest rates increase cycle ?

• Short term rates level impacts the cost of
  consumer credit facilities (credit cards)
• ? Negative for non durable goods (food,
  clothing) consumption
• Long term rates set the interest rate on mortgage
  loans and long term consumer loans
• ? Negative for housing expenses and durable goods
  (cars, furnitures and equipment) consumption

28
Retirement financing issues

• So far, retirement plans are financed by workers
  contributions to pension funds, therefore
  additional savings have not been crucial
• However, US demographic factors are likely to
  disturb this equilibrium if the population gets
  older

29
Retirement and healthcare financing issues
30
Retirement financing issues

• There will be less workers (or funds) and more
  retirees (or claims) in 2020
• ? Threat of a liquidity risk
• Additional personal savings are necessary

31
Implications of our 3 scenarios
32
Consequences

• Given the importance of the C component within
  the GDP (72 contribution in the 2003 growth)
• American policymakers will have to find other
  trailblazers to fuel future growth
• ? Boosted exports ? More investments ?

33
Agenda

• Overview of key indicators
• Consumer habits
• International Comparison
• Analyzing the impact on GDP BOP
• Risk factors affecting consumption
• Conclusion

34
Conclusion

• US Household Consumption driving factor for world
  economy
• Household savings rate substantially low in US
  compared to rest of world
• 40 of world saving is used to finance US trade
  deficit
• Lower Interest rates, Higher expectations by
  investors leads to higher consumer expenditure
• Depreciating dollar was predicted long ago, a
  result of ever growing Consumer Expenditure
• Consumer Expenditure ---- A Bubble ?

35
Thanks for your attention !