As the Wealthy Splurge, Overall Spending Jumps

Consumer Purchasing Increases 6.9%, the Most Dramatic Boost Since 2000

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LOS ANGELES (AdAge.com) -- Consumer spending keeps surging as the rich keep splurging.
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The affluent account for massive shares of spending in key categories. For example, the top fifth in 2005 was responsible for a record 49.6% of spending on new cars and trucks and 58.7% of consumer spending on hotels, vacation homes and other out-of-town lodging.
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Consumer spending on goods and services last year jumped 6.9%, according to Bureau of Economic Analysis data. That figure, which compares annualized, seasonally adjusted third-quarter spending vs. 2005, marks the biggest growth since the bubble year of 2000.

Consumer Expenditure Survey
Spending patterns vary from rich to poor. The government's latest Consumer Expenditure Survey shows spending by the top fifth of households (pretax income of $85,147-plus) rose 8.1% in 2005 vs. 2004. That's a bigger percentage boost than for any other income group.

The top fifth collected 50.4% of pretax income and accounted for a record 39% of consumer spending in 2005, according to the Consumer Expenditure Survey, produced by the Bureau of Labor Statistics. Those affluent households outspent the bottom three quintiles combined. Spending disparities have grown: The bottom fifth (pretax income below $17,579) did just 8.2% of 2005's consumer spending, a record low.

The top fifth spread its riches, accounting for more than its share of the population in every product category except tobacco.

The affluent account for massive shares of spending in key categories. For example, the top fifth in 2005 was responsible for a record 49.6% of spending on new cars and trucks and 58.7% of consumer spending on hotels, vacation homes and other out-of-town lodging.

Away-from-home lifestyle
The rich know how to eat, drink and be merry: The top quintile picked up the tab for 38.3% of spending on restaurants and other away-from-home food; 37.9% of alcohol; and 53.4% of fees and admissions, including sporting events, movies, plays and club memberships.

The top fifth accounted for 39.1% of 2005 consumer spending on newspapers, magazines and books. That's not surprising given that the affluent tend to be more educated. What's intriguing, though, is that households tend to spend about the same percentage of income on reading materials regardless of income level: The average household, the bottom quintile and the top quintile all spent 0.27% of 2005 income on reading.

Publishers take heed: Reading's share of consumer spending now is less than half its level in 1984. Among income quintiles, spending on print media and books is at or near the lowest point since 1984; figures would look far worse if inflation were factored in.

Tech in favor of print
The trend for consumers by age is more troubling for publishers. While older consumers spend more on reading now than in 1984, spending by younger consumers has plunged. For example, households headed by 25- to 34-year-olds spent an average of $89 on print media and books in 2005, down 33% from 1984. On the other hand, spending on consumer electronics and computers soared during that period; priorities and habits change.

Shifts in spending are more dramatic over generations, as seen in American Demographics' analysis of historic data (see charts above). At the beginning of the 1900s, food accounted for 42.5 cents of each dollar of spending, housing took 23.3 cents and apparel commanded 14 cents. The average family spent $19,136 (adjusted for inflation in 2006 dollars); there wasn't much left over after necessities.

But income rose over time, and more efficient production slashed the costs of food and apparel. By mid-century, consumers had more money to allocate to housing, cars and entertainment. Those trends have continued; housing has been the big winner, snaring nearly one-third of consumer spending in 2005. Today, two-thirds of families own a home, up from 19% a century ago. In spending priorities, there's no place like home.
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