Trading Cars for Computers

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Expectations of how much money will be spent on particular categories of consumer goods can give companies insight into where the most money will be flowing in coming years. But it's important to remember that the number of people in the population will be growing, as well. A category that apparently is growing slowly may in fact be losing ground on the individual level. By comparing projected spending with projected population, it's possible to see what items are making inroads with the public and which are falling out of favor.

The trails into everyday life blazed by computers in the last decade are set to become full-fledged highways. In 2006, spending on computers divided by the number of Americans aged 16 and older is projected to be nearly ten times what it was in 1996, according to calculations based on Bureau of Labor Statistics (BLS) data. In 1996, Americans spent $61 billion on computers in 1992 dollars, working out to $299 per American aged 16 and older. In the same 1992 dollars, the BLS expects that in 2006 nearly $666 billion will be spent. When compared with the projected 2006 population, that works out to $2,953 per person aged 16 and older.

The projected explosion in computer sales is an illustration of what happens when what was considered a luxury good starts to be seen more as a necessity. By 2006, people who were born during the first wave of personal computing in the 1980s will be forming their own households. The fact that the youngest householders at the end of the first decade of the new millennium will have no recollection of a world without PCs is bound to shape their opinion about computers. Further, the high level of use of computers by seniors and retirees combined with the fact that the oldest baby boomers will be turning 60 in 2006 would by itself seem to indicate that the growing number of people in a targeted age group will boost sales. Taking into account boomers' desire for a more active, engaged retirement than their predecessors, the higher educational levels attained by the cohort, and the wish of many to keep working, albeit in a more fulfilling way, computer sales could jump even higher when baby boomers hit the peak retirement years.

On the other end of the spectrum, sales of new cars are expected to suffer. In 1996, $73.5 billion was spent on new automobiles. The BLS expects this to decline to $68 billion by 2006, in constant dollars. In a rough per-capita calculation for people aged 16 and older, the spending is expected to drop from $360 to $302, a 16.3 percent decline. The projected decrease in sales for cars is due in part to growth that is expected for light trucks and other automotive items. In both, per-capita spending is expected to grow by around 17 percent between 1996 and 2006.

The passenger automobile, in some ways, seems to be at the opposite end of the life cycle from the PC. Long accepted as a necessity, cars are currently being displaced by some trendier cousins-light trucks. But the projection of a reduced demand for cars, although based on established auto industry trends, could be shakier than the expectation of greater computer sales. The reasons are two of the major bugaboos of figuring out what the world will look like a few decades hence: fashion and unexpected change.

The first is easiest to explain and can be summed up by what happened after America saw the glorification of fly fishing in the film, A River Runs Through It, or when Tiger Woods demonstrated that there was more to golf than old men in bad pants. For the first, trout streams filled up across the country and even style doyenne Martha Stewart donned a khaki hat and fishing vest to try to achieve the soft-focus feeling expressed in the movie. For the second, a new generation saw that golf could be something stylish, cool even. The result was a desire to imitate that spurred sales of fishing equipment and golf clubs that couldn't have been predicted by even the most astute statistician a decade earlier. Futurists, who allow more instinct into the equation, can sometimes pull a prediction of this sort out of the bag, but the more a judgment is based on gut feeling, the longer the odds of it becoming a reality. In 2001, it's entirely conceivable that the latest sedan, convertible, or sport coupe will be the thing to have, and that light trucks will become passe. If this is the case, a lot could happen to make earlier auto sales projections inaccurate.

The second-and possibly more troublesome-hazard people doing projections have to contend with is an unexpected change that could throw a monkey wrench into even the most carefully considered estimates. While innovations in the automotive industry generally work their way through the pipeline so gradually that forecasters can see them coming a mile away and adjust accordingly, a number of fundamental alterations could start to appear on the scene by 2006, and the real wild card-whether the public will embrace or reject them-will have a major impact on sales. Automakers are experimenting with a variety of replacements for the internal combustion engine, the power plant for most cars since the days when it displaced the Stanley Steamer. These options, including fuel cells, electric cars, hybrids, and others, could fizzle, or they could take off, and in the process introduce a new paradigm for automobiles. In this brave new world, a big push could occur for people to buy cars that run silently, use less energy, or conform to new government regulations. If so, and if cars fit the new pattern better than trucks, the trend of declining interest in cars could reverse.

But for the real necessities of life like food, shelter, and clothing, it's unlikely that anything so dramatic will occur. Spending patterns on the three are pretty well set and will most likely increase only insofar as people's ability to spend more on them increases.

But this doesn't mean that the modest percentage growth expected to occur in these categories is of little consequence. The sheer size of the categories guarantees that even though companies will be competing for a pie in 2006 that will not be much bigger than it was in 1996, it still will be a pretty big pie. Food and beverages, one of the largest spending categories in 1996, with sales of $704.5 billion in 1996, is expected to climb to $794.4 billion in 2006. At the personal level, this works out to $3,452 in 1996 and $3,523 in 2006, a 2.1 percent increase. Housing will also experience little change, at 2.8 percent growth per capita. The expected growth would raise individual spending from $3,396 to $3,492 and overall spending from $693.1 billion to $787.5 billion. Clothing and shoes, on the other hand, may grow faster. Total spending could rise from $267.9 billion in 1996 to $349.4 billion in 2006. This works out to $1,313 per American aged 16 and older in 1996 and $1,549 in 2006, an 18.0 percent increase.

Among the largest categories, only medical services is expected to experience moderate growth, at 13.4 percent per capita between 1996 and 2006. This equates to $3,419 in 1996 and $3,879 in 2006 per person, and cumulative totals of $697.9 billion and $874.7 billion, respectively, for the two years.

In some ways, the warnings expressed above regarding rapid change in the automotive industry are even more valid in the world of medicine. Technology and social attitudes, combined with an aging population, ambivalence about some newer health systems, and great rewards for innovation make medicine a tough business to track. But in the mid-1990s, it became clear that a downward pressure on the increase of health- care costs was important to a large segment of the public. President Clinton's health-care proposal flopped, but the desire for costs to stay in check lived on, just as it may outlast the first wave of HMOs that sprung up promising better care for less money.

The point is, in the category of medicine, there seems to be a desire to restrain spending. Fighting as it must against the need to spend more for better research and treatment, spending in this sector may be moderated by pressures to both spend more and less. As long as the public mood remains constant, the BLS may well find its expectations were on target. But for now, the data from the BLS represent the best estimates from one of the groups best qualified to make them. Smart marketers can use them to try to plot where their customers are going-until new estimates come out.

TAKING IT FURTHER This article is based on calculations using data contained in "The U.S. Economy to 2006," which appeared in the November 1997 issue of the Monthly Labor Review (Vol. 120, No. 11). To order, call the Government Printing Office at (202) 512-1800.

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