Why U.S. Consumer Spending is Overstated

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.

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Reader Comments

Praveen

June 27, 2008 02:00 PM

Amazing..the amount of junk in our information...Do they count Chinese savings as part of US savings now since they buy our bonds/stocks??

Lance

June 27, 2008 02:20 PM

Besides internet sales, many foreigners are coming to the U.S. to vacation and shop because of the weak dollar. I was talking to a businessman who runs an antique car dealership in North Texas, near Sherman. He told me that most of his customers nowadays are foreigners, especially Italians, who love classic, old American cars and are buying them up fast as hotcakes. We are truly selling our country out!

pushmedia1

June 27, 2008 03:29 PM

e-commerce is two orders of magnitude smaller than total consumer spending ($100B vs $10T). A 0.8% increase in consumer spending is almost equivalent to all spending in e-commerce. I'm guessing foreign purchases on American sites is an order of magnitude smaller than that.

It seems very unlikely the effects your talking about could be distinguished from other noise in the measurements much less driving bias in the reported number.

In any case, these are "domestic" statistics not "national" statistics. If foreigners are buying stuff here (online or off), then those expenditures *should* be reflected in domestic statistics.

john

June 27, 2008 03:40 PM

Garbage article.

john

June 27, 2008 03:41 PM

Garbage article.

Markus Seppala

June 27, 2008 04:00 PM

Interesting story! Here are a few examples that could possibly count as US sales: For a recent trip from Belgium to Canada, I booked my Air Canada tickets using a Swedish credit card through US site orbitz.com. I also booked a room in Canada using US site hilton.com. Finally, I booked a Canadian train ticket through viarail.ca using a US credit card. You tell me if any of these would count as US sales.

Strategery

June 27, 2008 05:06 PM

Who cares? That is money that is flowing into the US and will (hopefully) be spent again in the US. The US will see more and more exports because of our massive trade debt. We cannot keep importing without also exporting. Get used to competing with the world for resources, foreigners are already buying up our food stockpiles. If you buy foreign in the US does it count too? I don't trust any of these reports, as the consumer price index excludes food and energy prices; while the GDP report counts "rent" that people "pay" on houses that they live in; and work that is outsourced.

ummm

June 27, 2008 05:09 PM

I sometimes wonder how people get their articles on business news sites.

My 15 year old niece could have written this if I pointed her to the report and FAQ and said you have two days to make up rubbish about the report so I can publish it.

In a truly global market, which the US has been pushing down everyone's throats for decades, it shouldn't matter who buys, you get paid.

Nate

June 27, 2008 05:10 PM

Pushmedia1 makes an excellent point, interesting thought, but ultimately irrelevant. It would take a lot more than that to move consumer purchases.

Richard

June 27, 2008 05:26 PM

Furthermore, it doesn't really matter where the spending comes from (okay, it does matter a little). A product sold is a product sold, and it doesn't really matter who is giving us that sale and (hopefully) resultant profit.

Investor

June 27, 2008 06:20 PM

Lets assume this is all true. Then isn't it great news that even while American consumers are pulling back (hopefully paying off some or their credit card debt), the worldwide demand is picking up that slack? The way I see it, this just substitutes domestic consumption with exports. I really like exports much better that debt-driven domestic consumption as a driver of our GDP.

Smith

June 27, 2008 06:27 PM

Well, I am not surprise at the number if this counted all the online purchase. Just look at Inflation rate, what US government said only about 0.6%, how in the world that calculation from. Nothing new to me for any in-accurate data.

David

June 28, 2008 08:43 AM

Before Xmas, the Canadian dollar exploded to nearly $1.10 US, from its previous levels of 65 cents a few years ago. Then it subsided to around par. Meanwhile retail prices in Canada remained high relative to the US. So many Canadians did more Christmas shopping in the US than ever before. Some of this was done in physical cross border shopping (something else that isn't picked up by the statistics). A lot was also a spike in online shopping. LL Bean offered free cross border shipping, and this was a huge incentive. Anything "soft" (eg computer software, online gaming, music) that is purchased cross border has no shipping cost.

Mike, the only issue I have with your piece is that (typical of many US commentators) your examples are all thousands of miles offshore, when the most pertinent ones are right next door...

cm

June 29, 2008 01:35 PM

One point that apparently some are missing is the (potential) double counting of exports as domestic sales.

CJ

June 29, 2008 05:02 PM

So much noise in the data. Probably impossible to determine whether the sales are up because of domestic buyers or foreigners. But someone is spending more money.

Mike Mandel

June 30, 2008 12:53 PM

Folks,
I always enjoy the comments, even if some of you think that the post could have been written by your "15-year old niece."

I wrote another post on the size of e-commerce relative to the size of retail sales. Next I will do one on why this is all important.

Joe Cushing

July 2, 2008 09:56 AM

I love it. We import stuff from china, then sell it all over the world; including back to china; on the internet.

Thank you for your interest. This blog is no longer active.

 

About

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.

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