Summer Spending Slump Continues; Autumn to Bring Increases

Researchers from Georgetown University’s McDonough School of Business predict consumer spending will continue to slightly decline from July to August. The Problem-Driven Consumption Index (PDCI) – based on the idea that consumers’ problems predict their purchases – suggests that, despite this month-to-month decline, consumer spending will begin to bounce back as consumers head into the fall season.

“Over the summer, we saw a slump in consumer spending, perhaps due to fears about the global economy and a weak May jobs report,” said Kurt Carlson, professor of marketing at Georgetown McDonough. “However, as summer comes to an end, we predict spending to begin to rise. We saw the number of consumer problems increase this month, and we expect to see the amount spent to solve those problems increase moving forward.”

The index – which measures consumers’ problems that require market solutions related to transportation, housing, healthcare, and other categories – decreased in August to 153.1, from July’s 162.1 and June’s 174.3. August’s level is driven by a slight decrease in the amount consumers were planning to spend to solve their problems.

“This month’s slight decline in the index is mainly due to a decrease in plans to spend in the attire, communication, home and housing, and social and health categories,” Carlson said. “We also saw modest gains in planned spending in the work and life and personal care categories, consistent with the August back-to-school shopping season.”

The PDCI, which uses non-seasonally adjusted data, remains up 16 percent year-over-year. This increase is driven by a rise in the number of problems consumers plan to solve and 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/PDCIaug16. For more information about the index, visit http://bit.ly/consumerproblems.