Monday, December 29, 2008

Two Million Artists

Two million Americans are trying to make a living as artists, according to a new report by the National Endowment for the Arts. Every decade or so the NEA updates its profile of people whose primary employment is in the arts. The latest report, Artists in the Workforce, 1990-2005, finds 2 million workers who identify their primary occupation as actor, announcer, architect, fine artist, art director, animator, dancer, choreographer, designer, entertainer, musician, singer, photographer, producer, director, writer, or author. The 2 million figure excludes another 300,000 workers whose secondary employment is in the arts.  

Artists have a median age of 40. Most are college graduates. Among those who work full-time, median personal income was $45,200 in 2005--below the $52,500 median income of all professional workers. 

Architects have the highest median income ($63,500 among full-time workers), and actors have the lowest ($31,500). One in three artists is self-employed. Not surprisingly, women artists make less than their male counterparts. Another NEA report, Women Artists: 1990 to 2005 details the differences. 

Friday, December 19, 2008

Many Renters Use Only Cell Phones

Conveniently, every six months the federal government updates the nation on how many households use cell phones only. The latest survey, taken January to June 2008, finds that 16 percent of Americans aged 18 or older use only cell phones. 

Age is the most important factor in determining cell phone only use, with young adults most likely to spurn landlines. Among 18-to-24-year-olds, 31 percent use only cell phones. Among 25-to-29-year-olds, the figure is an even larger 36 percent. 

The demographic segments dominated by young adults are also the ones most likely to use only cell phones. A hefty 34 percent of renters, for example, are cell phone only users (compared with a paltry 9 percent of homeowners). Among Hispanics, 22 percent use only cell phones (versus a smaller 15 percent of non-Hispanic whites). Among unrelated adults who live together (many of them cohabiting couples), the 63 percent majority are cell phone only. 

Thursday, December 18, 2008

They Should Have Seen It Coming

The empty cash registers finally got their attention. Businesses large and small are in a panic, wondering where their customers went. Last week the Census Bureau reported that November 2008 retail sales were 7.4 percent below November 2007 sales--a record decline. More than a few captains of industry are expressing surprise at the severity of the downturn. But anyone with an Internet connection, a calculator, and a modicum of curiosity could have seen this coming. Middle Americans are in trouble and so are the businesses that have long ignored them.

Easy money. Entitlement. Short-term thinking. All go a long way toward explaining why businesses are hurting. During the credit expansion of the bubble years, companies grew complacent and lost touch with Middle America. Even as conditions worsened for the average American, there was money to be made by selling bigger houses, bigger cars, and bigger televisions to the small fraction of the population that was living large. A handful of businesses did not abandon their roots, such as Wal-Mart and McDonalds. Their focus on Middle America never wavered. That explains why November sales were higher than expected at Wal-Mart (same-store sales up 3.4 percent) and McDonalds (up 4.5 percent) while almost everyone else reported sharp declines. Now businesses are playing catch-up. They must reacquaint themselves with Middle America, and fast.

American Business, meet Middle America:

  • Where men's earnings have been declining for more than two decades. The median earnings of men who work year-round, full-time peaked in 1986.
  • Where household incomes are shrinking. Median household income fell 1 percent between 2000 and 2007, after adjusting for inflation.
  • Where, between 2000 and 2006, the average household had already cut its spending on restaurant meals, clothes, new cars, kitchen appliances, outdoor furniture, toys, newspapers and magazines, and a long list of other items.
  • Where the average home was worth a modest median of $191,000 in 2007, according to the American Housing Survey--and it is worth even less today.
  • Where, the percentage of people who moved fell to an all-time low of 13 percent in 2006-07 as the housing market seized up.
  • Where the much vaunted American entrepreneurial spirit is all but dead. The percentage of workers who are self employed fell to an all-time low of 7.1 percent in 2007.
  • Where the American dream of a college education is fading. The number of students enrolled full-time in four-year colleges fell 4 percent between 2005 and 2006 (the latest data available), according to the Census Bureau.
  • Where the return on a college degree is shrinking. The median earnings of men and women with bachelor's degrees who work full-time peaked in 2002 and has fallen by 3 to 4 percent since then, after adjusting for inflation.
  • Where the out-of-pocket cost of health insurance has climbed 27 percent since 2000, after adjusting for inflation.
  • Where people are scrimping on health care. The number of physician visits fell 6 percent between 2005 and 2006 (the latest data available), according to the National Center for Health Statistics.
  • Where 60 percent of workers do not have a 401(k) or an IRA, according to the Employee Benefit Research Institute.
  • Where a growing proportion of older workers cannot afford to retire. The labor force participation rate of men aged 65 or older climbed 3 percentage points between 2000 and 2007.
Falling incomes. Rising costs. Spending cuts. Long before the 2008 economic meltdown, Middle America had assumed crash positions. If businesses had been paying attention to their customers rather than their cash registers, they could have positioned themselves for the crash as well. Now all they can do is pick up the pieces.

Wednesday, December 10, 2008

Cell Phone Spending Tops Landline

Recently released statistics from the 2007 Consumer Expenditure Survey show that average household spending on cell phone service has surged well above spending on residential phone service. Here are the numbers:

Average household spending in 2007
Cell phone service $608
Residential phone service $482

In 2006, spending on residential phone service ($542) was slightly greater than spending on cell service ($524).

Source: Unpublished tables from the 2007 Consumer Expenditure Survey

Sunday, December 07, 2008

The Great American Shopping List

Oh, American consumer, how we miss you!

Consumer spending is falling at a 3.1 percent annual rate, according to the latest statistics from the Bureau of Economic Analysis. Many of the nation's retailers reported double-digit declines in October sales, with the New York Times calling it a "collapse" in spending. Since consumer spending accounts for two-thirds of our economy, the belt tightening hurts all of us. To weather what looks like a prolonged economic downturn, businesses large and small need to brush up on consumer spending patterns. There is no better place to start than with The Great American Shopping List.

You can learn most of what you need to know about consumer spending by taking a look at the list--the inventory of every product and service purchased by American households, ranked by how much the average household spends on each item. The federal government collects the information by surveying thousands of households each month, asking them how much they spend on everything from cookies and crackers to video games and recreational vehicles. The Consumer Expenditure Survey data are used to create the all-important Consumer Price Index. Although the list is long, with more than 350 products and services, just 10 items consume more than half of the $50,000 spent by the average household each year. Here they are.

1. Social Security payroll taxes The bad news is that Social Security is our single biggest expense. The average household paid $3,811 into the Social Security trust fund, according to the 2006 Consumer Expenditure Survey. The good news is that this flow of funds reverses direction when you retire. If you don't believe it, join the crowd--only 31 percent of today's workers think Social Security will be their most important source of income in retirement, according to the Employee Benefit Research Institute. The rest will be surprised. The fact is, most American workers do not have a 401(k) or an IRA. Those who do have managed to save very little--and that was before the stock market crash. You don't have to be a number cruncher to realize that Social Security will be even more important tomorrow than it is today. Among people aged 65 or older, 68 percent receive at least half their income from Social Security.

2. Mortgage payments Hyperbole is the word that best describes the media narrative about the dire financial straits of the nation's homeowners. In fact, most homeowners have a manageable, fixed-rate mortgage. Most owe far less on their mortgage than their home is worth. Although there are plans afoot to help homeowners renegotiate their mortgage payment, few will need to take advantage of these efforts. Nevertheless, because mortgage payments are the second largest expense for the average household--an expense that is pretty much non-negotiable--household budget cutting will target items further down the list.

3. Car payments U.S. auto sales are plummeting, down 32 percent in October. Further declines are likely as households cut costs. The automotive industry is caught in a perfect storm--a severe recession, a paradigm shift in what consumers want (hint: better gas mileage), and a demographic transition as SUV-loving baby boomers morph into downsizing empty-nesters. The car payment is one item on which the average household can and is cutting back, forcing car manufacturers to beg the federal government for handouts to stay afloat.

4. Groceries Food prices have been rising at a pace not seen for decades, and forecasters say costs will continue to climb. Americans do not like paying higher prices for food, but they have little choice unless they want to plow up the backyard. Groceries are the fourth largest item in the Great American Shopping List. For grocery stores, the cutback in consumer spending could be good news, since a growing proportion of budget-minded shoppers are likely to head to a grocery store rather than a restaurant. In the grocery aisles, private labels will flourish, as will fresh prepared food--the grocery store's answer to the demand for fast-food convenience. Fresh prepared food is already the single biggest item on America's grocery list. Average household spending on fresh prepared food from the supermarket deli climbed an enormous 53 percent between 2000 and 2006, after adjusting for inflation.

5. Restaurant meals Eating out is a necessity, not a luxury, for busy two-earner and single-parent families with children. Convenience drives them to restaurants and price steers them to fast-food. This is why fast-food restaurants will weather the downturn far better than full-service establishments. At McDonald's, same-store sales were up 8 percent in October. Meanwhile, full-service restaurants such as Bennigan's are filing for bankruptcy.

6. Gasoline Even before prices soared, gasoline was one of the biggest household expenses. Now that Americans are desperately seeking savings, gasoline is an obvious target. Memo to Detroit: Fuel efficiency will be the number-one priority for American car buyers from now on, regardless of the price of a gallon of gas.

7. Federal taxes Taxes are a perennial political issue because they are one of the biggest household expenses. Middle class tax cuts may be on the way, but do not expect this line item to fall much lower in the list.

8. Property taxes With home values declining and local governments strapped for cash, property taxes will become one of the most contentious local issues of the economic downturn.

9. Health insurance The average household devoted $1,465 out-of-pocket to health insurance in 2006, 27 percent more than in 2000 after adjusting for inflation. Most Americans will do just about anything to avoid losing their health insurance, which guarantees budget cutting elsewhere as the cost of health insurance rises.

10. Electricity The average household spent $1,266 on electricity in 2006, placing it 10th on the Great American Shopping List. Consumers are eager for ways to reduce this major expense. This desire will fuel green businesses that can help them save them money.

Every item at the top of The Great American Shopping List is a necessary expense. This is not good news for the hundreds of items further down the list--such as women's clothes in 16th place, television sets in 69th place, ice cream in 123rd place, whiskey in 285th place, or dating services in 359th place. With jobs disappearing, incomes falling, and consumers cutting back, necessities will command a growing share of household spending, leaving less for everything else.

Wednesday, December 03, 2008

College Enrollment Is Declining

An article in today's New York Times on the rising cost of college includes the following sentence: "Although college enrollment has continued to rise in recent is not clear how long that can continue."

I have posted on this topic before, and I will say it again: college enrollment is already declining. Traditional college enrollment--meaning undergraduates attending four-year schools full-time--fell 4 percent between 2005 and 2006 (the latest data available).

This dramatic reversal of the long-term trend is being masked by an enrollment surge at community colleges. All this was underway BEFORE the current economic collapse. The next few years are going to be very tough indeed for high-priced private four-year colleges.