The Expert: Consumption & Retail Sales Trends
- May 26, 2009
Over the past 50 years, U.S. consumption patterns have changed considerably. Until the middle of 2008, consumption of goods and services rose substantially, fueled by lower savings, increased wealth and increased household debt.In light of the current economic recession, U.S. residents have been saving more and spending less. In the past 12 months, the savings rate—the percentage of unspent after-tax income—has risen from zero to 4 percent as consumption has been curtailed. What are the implications of a shift in consumption, and what is the impact on supply chain-related logistics and distribution real estate?Consumption levels in the U.S. have been on a long-term upward trend, from 60.6 percent of nominal GDP in 1967 to more than 70 percent in recent years. This rise in consumption occurred while retail sales as a share of GDP actually diminished. The difference between consumption and retail sales is that consumption includes services, housing, education, leisure and health care. Statistics show that while consumption has continually increased, retail sales as a share of GDP have declined to 26 percent in 2009, falling 10 percent over 44 years, even when adjusted for Internet retail sales.This means that U.S. residents are consuming more but buying less “stuff.” The real increase in spending goes to the basic necessities (housing and health insurance), education (preschool and college) and everyday services (transportation and childcare). While these areas tapped for consumption don’t necessarily have a presence on a store shelf, they use products and materials that have industrial space requirements. To point, the logistics and distribution real estate market encompasses a diverse tenant base across all sectors, only a portion of which is the retail slice of goods consumed.Consumption levels fell 4 percent at an annual rate in the second half of 2008, and while up marginally in the first quarter, they are likely to fall over the next two quarters, as the economy is currently contracting. Retail sales relative to GDP are down almost 500 basis points from their peak in 2000, and further adjustments in consumption and retail are likely forthcoming.While neither personal consumption expenditures nor retail sales are the primary drivers of industrial real estate, they are critical components of demand. Notwithstanding the current environment, it is clear they will both once again continue to grow at levels consistent with broader economic growth, fueling global trade, which is the primary driver of industrial demand.David Twist is vice president of research for AMB Property Corp.