Household spending has increased tenfold since 1950, according to the Bureau of Labor Statistics. Factor in inflation, and the increase is less dramatic. Spending, adjusted for inflation, rose from about $29,000 in 1950 to $37,000 in 1972. Since then, spending has seen smaller real increases.
Viewed over the long term, statistics prove a point: Americans' real income has increased, which leads to more consumption, which leads to changing priorities.
A primer on consumer spending patterns over the decades and a closer look at 2003, based on labor statistics data:
The most dramatic change in consumer spending is food's shrinking share of wallet. Food accounted for 13¢ of each consumer dollar in 2003, down from 32 cents in 1950 and 43 cents in 1901. A big change—and fully expected as the nation's income grew. It confirms Engel's Law, the observation by 19th century German statistician Ernst Engel that the proportion of income spent on food falls as income rises.
Rising income also means more dining out. Restaurant dining and takeout food accounted for 41% of food spending in 2003, up from 21% in 1960.
Rich and poor allocate the same amount of spending—about 5.5 cents of each dollar—on away-from-home meals, according to the bureau's latest Consumer Expenditure Survey. But share of food budget devoted to dining out increases with wealth. The poorest fifth of families spent one-third of food budgets on away-from-home meals in 2003. The top fifth spent slightly more dining out ($4,535) than eating at home ($4,503).
The drop in the food budget frees up income. Much of the extra money has gone into the American dreams of house and car.
Americans are buying more—and bigger—homes. The Census Bureau says 69% of families own homes today, vs. 63% in 1965. The average new house today is 2,300 square feet, vs. about 1,500 square feet in the mid-'60s and below 1,000 square feet in 1950, according to the National Association of Home Builders. Those rooms need to be furnished. Add it up, and housing accounted for 33¢ of every dollar of consumer spending in 2003, up from 26¢ in 1950.
Transport costs took 19¢ of every consumer dollar in 2003, up from 15¢ in 1960. The reason is more—and more expensive—cars. One in 17 Americans bought a new car in 2004, vs. one of 25 in 1960, according to census data and sales figures from Automotive News. In 1960, a basic Ford sedan cost $2,257, or $14,000 in 2003 dollars. In 2003, the average transaction price for a new vehicle was about $25,000.
The annual Consumer Expenditure Survey shows how reliant auto marketers are on upper-income buyers. In 2003 (the most recent survey available), households in the bottom three quintiles of income spent more money on used cars than new. The second-highest income group spent only a little more on new cars.
Only the top 20% overwhelmingly splurged for that new car smell. The top fifth of households spent almost as much on new cars as the bottom 80% combined.
Rich and poor drive different wheels. Simmons' spring 2004 National Consumer Survey found lower-income households are 70% more likely than the average household to drive a Mercury, not good news for Ford Motor Co.'s ailing upmarket brand. The rich favor lux brands BMW, Infiniti and Lexus.
The average household spent 12% of its budget on apparel and shoes in 1950, but that fell to 8% in 1972, 6% in 1984, 5% in 1993 and 4% in 2003.
Inflation has been held in check by the rise of low-cost foreign production and discounters like Wal-Mart; $100 of clothing in 1984 would have cost $116 in 1993—and the same $116 today, according to Consumer Price Index data.
Households tend to allocate a similar share of the budget to clothes—4% to 5%—regardless of income.
The share of money spent on entertainment has hovered around 5% since 1950, but priorities have shifted. Spending on consumer electronics has soared; spending on newspapers, magazines and books has plummeted. The average household apportioned just 0.3% of spending ($127) for reading materials in 2003, down from 1% ($51, or $317 adjusted for inflation) in 1960.
The rich, who also are more educated, spend more money on print media and books than the poor do. But don't read too much into that. It turns out households in every quintile of income spent the same average 0.3% of budget on reading in 2003. For publishers, that doesn't make cents.
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