Monday, March 24, 2008

What's in Store for Books?

Grab your hankies and prepare to weep. A National Endowment for the Arts report (To Read or Not to Read) warns of a decline in book reading over the past decade. The percentage of adults who have read a book for pleasure (not required for work or school) in the past year fell from 61 percent in 1992 to 57 percent in 2002--a 4 percentage point decline. Is this decline a cause for concern or, rather, a sign of the book's staying power? To get a better perspective, let's look at what has happened to two other traditional media outlets--the daily newspaper and the network evening news.

Between 1991 and 2002 (roughly the same time period is used for comparability; more recent data are available), the percentage of people who read a newspaper every day fell from 52 to 41 percent, according to the General Social Survey--a much larger decline than the one experienced by books. Even more telling, industry statistics show that since 1990 unit sales of trade books have increased, while weekday newspaper circulation has decreased.

Yes, average household spending on books has dropped. It fell by a painful 28 percent between 1991 and 2006 after adjusting for inflation, according to the Consumer Expenditure Survey. But much of the decline in spending can be explained by the growing sales of used books and the deep discounts offered by and other Internet retailers. No such benign factors can explain why household spending on newspapers and magazines fell by a heartrending 60 percent during the same years.

Network evening news is also experiencing a precipitous decline. The average number of people who watch network evening news plummeted from 42 million to 30 million between 1992 and 2002 (the same time period is used for comparability; more recent data are available), according to the Project for Excellence in Journalism. Not only is the network news audience shrinking, it is also aging. The median age of the viewers of evening news is now 60.

The fact is, the percentage of people who read for pleasure has remained remarkably stable over the past decade considering the enormous expansion of television channels and the adoption of computers and the Internet. Even more important, the demographics of book readers are healthy. Young adults are almost as likely as older Americans to be regular book readers, according to a 2004 NEA report (Reading at Risk). Forty-three percent of busy 18-to-24-year-olds have read a work of fiction in the past year, not too far below the peak of 52 percent among 45-to-54-year-olds. Contrast that 9 percentage point gap with this one: only 18 percent of 18-to-29-year-olds regularly watch network evening news compared with the peak of 56 percent among people aged 65 or older--a gap of 38 percentage points. Or this one: only 16 percent of 18-to-29-year-olds read a newspaper every day compared with 66 percent of people aged 65 or older--a gap of 50 percentage points.

Newspapers and network evening news are being supplanted by more efficient ways of getting up-to-the-minute information. Some claim electronic devices such as Kindle will replace books. But hand-held electronic devices are no more likely to replace books read for pleasure than video screens have replaced original art, virtual tours have replaced travel, or pills have replaced food.

Wednesday, March 19, 2008

Last of the Big Spenders

"Consumers stopped buying pretty much everything," commented the Associated Press in a news story about the 0.6 percent decline in February's retail sales. This bit of hyperbole about the $380 billion Americans spent at retailers in February is yet another example of the abysmal quality of reporting on trends in the consumer marketplace.

To put it bluntly, reporters just do not get it. They err--out of confusion or laziness--when they explain macroeconomic trends as if those trends describe the behavior of you and your neighbors. It is called anthropomorphizing, and it can be a harmless way of putting a human face on dry statistics. Not in this case. By anthropomorphizing macroeconomic trends, reporters are misleading the public about the real dynamics of the consumer marketplace.

For years, the people who bring us the news have been telling us what big spenders we are, when all along we have been cautious consumers. Now they are telling us what scrooges we are, when we are the same cautious consumers we have always been. How did reporters get so far off track?

It all started decades ago with the rise in personal consumption expenditures (PCE), a macroeconomic indicator. PCE is one of those dry statistics-the sum of all spending on consumer products and services in the United States. Between 1984 and 2006, PCE more than doubled after adjusting for inflation. Rather than explain the real reasons for the rapid growth in PCE, reporters simply anthropomorphized the trend and called Americans big spenders. In fact, average household spending grew by only 14 percent between 1984 and 2006, after adjusting for inflation--less even than the gain in real median household income. And the spending of baby boomers (the ones usually accused of being the most profligate spenders) increased by an even smaller 4 percent, according to the Consumer Expenditure Survey. This modest rise in spending is even more impressive when you consider the 59 percent increase in the price of a new single-family home during those years, the 100 percent increase in the cost of college, or the 101 percent increase in out-of-pocket health insurance expenses.

Clearly, the average American has been pinching pennies all along. What accounts, then, for the ballooning PCE? To answer the question, reporters needed to look under the hood of the macroeconomic trends and discover what drove the engine. If they had bothered to look, here is what they would have found:

The population is growing. The United States is one of the fastest growing developed countries in the world, so it is only natural that aggregate consumer spending will rise each year along with the population. This does not mean you and your neighbors are spending more, however.

Boomers filled the peak spending life stage. Over the past two decades the enormous baby-boom generation filled the 35-to-54 age group, the peak spending years. Consequently, the number of affluent households reached record levels, the housing market exploded, and the nation's aggregate spending soared--even as individual households held their spending in check.

The price of stuff plummeted. The average American home has multiple television sets, closets full of clothes, and a kitchen full of appliances. Americans have more stuff because stuff is cheap. Televisions, video recorders, microwaves, dishwashers, computers, cameras--if the product uses an electrical cord or a battery, chances are it costs a fraction of what it did two decades ago. Television sets, for example, cost 85 percent less than they did in the 1980s. Falling prices have affected more than electronics. Toys cost 32 percent less, and clothing is less expensive. Just because we have more does not mean we are spending more.

Credit card payments ballooned. Consumer borrowing has grown handily over the years, but not because the average American is drowning in debt. Consumers are paying with plastic as a convenience, not an easy-money scheme. According to a Pew Research Center survey, just 31 percent of consumers carry a balance on their credit card bill. Among those who carry a balance, the median amount owed is a modest $2,200, reports the Federal Reserve Board's Survey of Consumer Finances.

The real story behind consumer spending is this: Americans did not spend foolishly when times were good. And their skill at pinching pennies may help soften the landing in the bad times that lie ahead.

Monday, March 17, 2008

Bet You Didn't Know

Percentage of high school students aged 16 to 17 who have jobs

2007: 21
2000: 30

Source: "Youth enrollment and employment during the school year," Monthly Labor Review