Consumer spending. IBISWorld Business Environment Report September 2014.

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1 CONTENTS Error! No text of specified style in document. September 2014 IBISWorld Business Environment Report September 2014 Estimated Value in 2014: $10.96 trillion Compound Growth: 2.17% Forecasted Value for 2019: $12.46 trillion Compound Growth: 2.59% (more formally aggregate consumption) measures the total amount spent by Americans on services and new goods and net purchases of used goods, both domestically and abroad. The data for this report is sourced from the Bureau of Economic Analysis and presented in chained 2009 dollars. Current Performance The financial meltdown and subsequent recession caused a nearly 30-year streak of consecutive growth in aggregate consumption to snap. Since 1980, the combination of job growth, lower savings and easier access to credit allowed American consumers to spend a greater amount than they had the previous year, even during times of economic hardship such as the bursting of the dot com bubble. However, the rapid deterioration of housing and financial markets led to a simultaneous tightening of credit and soaring unemployment, crippling incomes and preventing consumers from maintaining their spending habits. As a result, aggregate consumption slid by 0.3% in 2008 and fell further in 2009, by 1.6% to $9.85 trillion. Not all spending categories were impacted in the same way amidst the contraction. Expenditure on goods, particularly durable ones, declined more rapidly than spending on services or non-durable goods. The info@ibisworld.com

2 September hardest hit categories were motor vehicles and parts, gasoline and transportation services. This is not surprising given that a significant proportion of travel is to or from work and the widespread job losses diminished demand for these categories. Additionally, durable goods by definition are usable over longer periods of time, and thus upgrading or replacing older products such as furniture can be put on hold during economic hardship. Meanwhile, expenditure on services generally held their ground or recorded meek growth. However, there were declines even amongst service providers, with food and accommodation categories slipping in both 2008 and grew in 2010 and 2011, regaining the ground it lost during 2008 and While this growth was below the long term average, it was an improvement over recent declines and a far cry from the impending double-dip proclaimed by pundits throughout the year. The growth was partially driven by pent up demand for durables, which were scaled back during the downturn, being unleashed, leading to particularly robust growth within this category. Continued growth in 2014 (estimated at 2.5%) has been aided by the falling unemployment rate, which will improve per capita disposable income. Outlook Barring the recent recession, aggregate consumption has fluctuated within a narrow band, displaying slow and steady growth over the last two decades. With job growth expected to improve steadily over the five years to 2019, coupled with normalizing credit conditions, IBISWorld expects that the long term historical growth rate will reassert itself. More specifically, the creation of additional jobs will translate into a greater number of dollars in consumer wallets, enabling them to ramp up purchases. The ability to spend is expected to be further strengthened by easier access to credit, particularly for those who rejoin the work force, though lending standards will remain tighter than their pre-recession levels. Finally, higher employment and a brighter economic outlook are expected to boost consumer sentiment, which is forecast to make consumers willing to utilize their regained spending power. Data Volatility According to IBISWorld calculations, aggregate consumption displays a low level of volatility. This is largely because spending habits are deeply ingrained and fluctuations, particularly cutbacks, are marginal rather than drastic. Changes in aggregate consumption typically reflect changes in income or access to credit, rather than actual changes in underlying habits. Consequently, unemployment and lending activities play an important role in influencing the direction of aggregate consumption.

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