Consumer Spending Will Slow in February and March

Researchers from Georgetown University’s McDonough School of Business predict a slight dip in non-seasonally adjusted consumer spending for February and March. The Problem-Driven Consumption Index (PDCI) – based on the idea that consumers’ problems predict their purchases – predicts that although the early spring month over month decrease in consumer spending will persist, the drop will be less extreme than in 2015.

The index is based on a monthly survey of consumers that gauges the problems on which they plan to spend money across nine major categories, including healthcare, home and housing, and transportation.

“The gentle decline in the PDCI over the last two months suggests that consumer spending will continue to thaw in February and March from December 2015 and January 2016 levels,” said Kurt Carlson, professor of marketing at Georgetown McDonough. “The decline in the index stems mainly from a reduction in plans to spend on home, transportation, and finance problems. As such, we expect spending in these categories to decline disproportionately, relative to the other categories that we measure.”

The index decreased in February to 153.5, from January’s level of 160.2. The drop in the PDCI stems from small decreases in the number of problems consumers were planning to solve in the marketplace and the amount of money they were planning to spend to solve them. The PDCI remains up 33 percent year-over-year.

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/PDCIfeb16. For more information about the index, visit http://bit.ly/consumerproblems.