Good News for Consumer Spending

Researchers from Georgetown University’s McDonough School of Business predict an increase in consumer spending from April to May. The Problem-Driven Consumption Index (PDCI) – based on the idea that consumers’ problems predict their purchases – predicts that consumer spending also will be greater than May 2015.

“We expect consumer spending to continue its upward trajectory in May, which is a good sign for the health of the economy,” said Kurt Carlson, professor of marketing at Georgetown McDonough. “This may help give the Federal Reserve the confidence to raise rates in June. We also expect to see greater spending than this time in 2015, continuing the trend we noticed earlier this year.”

The index increased in May to 206.7, from April’s level of 188.6, driven by an increase in the number of problems consumers reported experiencing and the amount they were planning to spend to solve those problems.

“The upswing in the index is mainly due to an increase in plans to spend on finance, home and housing, transportation, health and personal care, and productivity problems,” Carlson said. “We expect spending to increase in those categories, compared to the other categories we measure. At the same time, the index suggests small decreases in the social category.”

The PDCI, which uses non-seasonally adjusted data, remains up 39 percent year-over-year. This year-over-year increase is driven by a modest increase in the number of problems consumers plan to solve and by a substantial increase in the amount they plan to spend solving them.

With more than two years of data, the PDCI predicts monthly retail spending. The index goes beyond measuring confidence or sentiment to study the problems in the marketplace and how consumers plan to solve them.

Carlson and Chris Hydock, assistant professor of research, derive the PDCI from responses to the Consumer Problem Survey (CPS). The CPS is a monthly survey of a nationally representative sample that measures consumers’ problems that require market solutions, thereby allowing the institute to track the quantity of, severity of, and the types of problems that consumers experience. By measuring and tracking the problems that cause consumers to enter the marketplace in search of solutions, the CPS provides entirely new insights into when and how consumers are likely to enter the market to solve their problems. To view the full report, visit http://bit.ly/PDCImay16. For more information about the index, visit http://bit.ly/consumerproblems.