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Posted by: Michael Mandel on June 25
Today’s consumer spending numbers look pretty good, don’t they? Up 0.8%, more than economists expected. Sounds like those U.S. households just keep spending, no matter how depressed they are.
But guess what? Those numbers have a hole big enough to drive a truck through (or a Fedex plane, more likely).
It turns out that if I live outside the U.S. and make a purchase on a U.S. website—say, Amazon.com or Apple.com—that purchase is likely to be counted as part of U.S. consumer spending. That is to say, the consumer spending numbers—which are just supposed to include spending by U.S. households—actually includes some portion of online sales to foreigners.
What’s more, that number is surely growing rapidly because of the fall in the dollar over the past year, and because overseas economies have been stronger than the U.S. As dollar prices look cheaper to people living outside the U.S., they are more likely to be willing to buy from a U.S. website, even if there are shipping and customs costs.
As a result, there’s no doubt that online sales to foreigners—counted in U.S. consumer spending—are surely growing at a rapid pace. In fact, it might be possible that Americans are actually cutting back on their spending—and we would never be able to tell from the numbers. From a statistical point of view, it’s not a good situation.
Let’s give an example. Blue Nile, the leading online retailer of jewelry, recently stepped up its overseas marketing efforts. For example, if you live in Australia and order a diamond ring, say, from Blue Nile’s website, the company will offer free Fed Ex shipping as long as the amount is over $750. And for Australians, buying jewelry
from the U.S. has become a much more attractive proposition, because the Australian dollar has risen roughly 20% against the U.S. dollar over the past year, and 33% over the past two years.
For Blue Nile, overseas sales through its website—including not just Australia, of course, but many other countries—has been a great thing. According to their first quarter earnings report, sales rose by 3.8% over the previous year—but all of that gain was from overseas sales. Domestic sales have in fact been flat. When I talked to CEO Diane Irvine, she told me that “we are thrilled to have all these new markets,” especially while the U.S. economy is still weak.
The Census Bureau, which collects the retail trade data on which much of consumer spending is based, knows about part of the problem. Here’s what they say on their website :
Question: Are foreign sales included in the e-commerce estimate?
Answer: The e-commerce and total sales estimates include sales covering all store and non-store retail locations in the United States operated by a firm selected in the survey. Sales made to a customer in a foreign country through a U.S. web site are included in the estimates
So the question is: What counts as a U.S. website? Is it a website operated by a U.S. retailer? Is it any retail website with a .com suffix? Is it any website operated from the U.S., even if it has a .uk or .jp suffix? (Easy enough to do) Or do the retailers just lump everything in together when they fill in the forms?
For example, Amazon.com operates 7 international sites, including Japan, Germany, Austria, Canada, the United Kingdom, France and China. But everyone else buys from Amazon.com (if you live in Mexico or Spain, you might get the Spanish version of Amazon.com, but it’s the same one that Spanish-speakers from the U.S. would get). What numbers does Amazon report to the government, and how do they break it down? They treat this as proprietary data, obviously, and wouldn’t tell me when I asked (I don’t blame them).
Meanwhile, Apple serves the whole world from one site, www.apple.com. For example, someone in Hong Kong who wants to buy from the online Apple store goes to http://store.apple.com/hk. Counted as part of U.S. consumer spending? Who knows?
I’ve got more to say about this topic..but enough for now.
P.S. If you live overseas and have bought something from a U.S. website recently, let me know! Or if you are a U.S. company getting a lot of international sales on your website, let me know! I am looking for more good examples.
Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.