Just in time for the holidays: A new dataset

If you are like me, then your favorite end-of-year festivity is making a forecast and a business plan for the New Year. So for the business planner or marketing executive on your list who has everything, the Bureau of Economic Analysis just released its first official statistics on personal consumption expenditures (PCE) by state for 1997-2014.

According to BEA, this data “provides insight into household spending patterns across states and can be used … to gain a better understanding of regional economies.”

If you are a regular reader of this column, then you know that I spend a lot of time trying to identify and report on consumer trends. America has a consumption-based economy — consumer spending accounts for more than two-thirds of the total GDP — and demand for plastics products is driven by growth in the major consumer end-markets.

And you are probably aware that overall growth in consumer spending during this recovery cycle has been sluggish. American households have exhibited more caution and restraint in recent years than they did in most of the previous recovery periods, and the result has been slower-than-average total U.S. economic growth during the past six years.

Yet while the overall rate of recovery in household spending has been subdued, it should not surprise anyone to learn that the pace of growth varies by region and by the type of good or service being purchased. Identifying and then planning for these variances is where this new dataset will be useful to plastics processors.

Most processors manufacture a distinct set of products that are marketed to specific end-markets. And many of these markets (for example, building materials) are regional in nature. So data series that allow for analyses across states and regions of the country are valuable.

For instance, in 2014 the fastest overall growth rates in nominal PCE were in the Far West and the Rocky Mountain regions (note that BEA uses the eight Census Bureau regions for regional comparisons). All of these states experienced nominal spending growth of at least 4 percent last year. Texas and Colorado were the states with the strongest gains in these regions — both were up 5.7 percent from 2013.

It is comforting to know that every state registered a gain of at least 2.1 percent in PCE last year. The state with the slowest growth was West Virginia (2.1 percent) followed by Missouri (2.3 percent) and Kentucky (2.4 percent). Despite the relatively slower growth in these states, their respective growth rates represented acceleration from 2013. On a regional basis, the Southeast and the Great Lakes regions had the slowest gains in 2014.

In terms of end-markets, the largest contributors to growth in PCE in 2014 were housing and health care. Overall spending for housing expanded by 4.1 percent, and the states with the biggest gains were North Dakota (8 percent) and Texas (5.6 percent). The states with the slowest gains in spending on housing were Vermont and Delaware. Total consumer spending for health care escalated 3.9 percent in 2014. The states with the fastest growth were Delaware (7.5 percent) and Hawaii (6.5 percent). The states with the slowest growth in health care spending were Missouri and Kentucky.

Those are a few noteworthy examples, but you get the idea. Pretty much every supplier of plastics products to a consumer end-market can quickly garner valuable insight into Americans' recent patterns of consumption broken out by state. This in itself should be worth the time it takes to download and peruse the data.

A deeper analysis will prove even more interesting. The data go all the way back to 1997, so it is possible to compare the patterns of behavior prior to the Great Recession with what we have experienced in recent years. We know that consumers have been atypically cautious, but for what types of products, and in what states, have Americans exhibited the most reticence?

It may not come as much of a surprise that even six years after the recession ended, American households are spending less on durable goods than they did before the recession. But I was surprised to learn just how much less they are spending. In the bottom 10 states, those with the biggest decline in spending when compared with pre-recession levels, the average drop in PCE for durable goods is almost 50 percent. Even in the top 10 states, those with the smallest declines from pre-recession levels, the average drop in durable goods spending is over 20 percent.

Put another way, even after six years of recovery there is no region of the country that is spending as much now on durable goods as it spent prior to the recession. And for almost every state, the decline is by a wide margin. This is true for furnishings and household equipment, recreational goods and vehicles, and even motor vehicles and parts.

That's not a misprint. Even after several years of robust growth in vehicle sales, the total PCE for motor vehicles and parts in 2014 was still well below the pre-recession trend. The average age of a car in the United States is still around 11 years old, and there has not been any decline in the number of miles driven. This indicates that there is still some upside in the cyclical recovery of the motor vehicle market. This logic should also hold true for most of the other categories of durable goods.

As for nondurable goods, the news is better. Consumer spending in some states for food and clothing in 2014 was higher than the pre-recession levels. The states at the bottom of the list for nondurable goods spending growth are still below their pre-recession levels by an average of less than 20 percent.

During a period of recovery, it is common for spending on nondurables to recover more quickly than for durable goods. Durable goods by definition last longer and they are usually more expensive, so their recovery tends to lag spending for less expensive goods and services. But the amount of lag this time is unusual, and so there are still opportunities for rapid growth in spending for many types of durable goods in some areas of the country. Time spent with this gift of new data may reveal some of these opportunities for 2016.