Apologies to whoever sent me the link to this because I don’t remember who it was. This graph is making the rounds on the intertubes. It is distressing a lot of kindred because it is used to prove our industry is dying because consumer spending on clothes today is half what it was in the 1970’s. Here’s the money quote:
Americans spent almost $326 billion on clothing and footwear in 2009, which as a share of disposable personal income, was the lowest ever in U.S. history, at only 2.98%. Spending on clothing as a share of income has fallen in 20 out of the last 22 years… Compared to 1950 when spending on clothing was 9% of income… and compared to spending on clothing of 6% of income in 1970, spending last year was half of that share.
Ugh. This is enough to convince anyone to throw in the towel. This blog author has a lot of credibility -he’s a professor of economics- but I disagree with his conclusions. A more comprehensive analysis of the research shows we’re doing quite well, far better than anyone realizes. The headline shouldn’t be Spending on Clothing and Footwear Falls Below 3% of Disposable Income for First Time in U.S. History but Clothing sales have increased 300%! I think it’s time for a bit of optimism amid the continual gloom and doom. Here’s why I think this is a great time to get into the industry or expand operations and product lines.
Sure, the percentage of disposable income spent on clothing has fallen by half -but is this bad news? Hardly. We have a lot more disposable income than we used to. For example, circa 1970, disposable income amounted to about $4,000. With clothing expenditures of 6% (see the chart above), that’s about $240. However, when you consider the increase in disposable income since then (43% in real dollars, adjusted for inflation) and even at today’s new low of only 3% of disposable income spent on clothing purchases, this means the average spent is $810 per year, amounting to a 300+% increase. We’re doing great! Disposable income only increased 43% but we got a disproportionate percentage of it, namely a 300% increase in spending. Don’t let statistics get you down, do the math.
Consider the alternative; if we were greedy and expected consumers to continue to spend that 6% on clothes, that would amount to each of us spending $1,600 for the chart to flat line amounting to a 600% increase in clothing purchases.
Are prices falling?
It is also claimed that clothing prices have fallen. Really? It depends on how you parse it so let’s look at one of the variables, namely product caliber. We have tons of clothes but they are not of the same caliber as before. Previously, a woman bought a greater percentage of blouses with interfacings, more involved sewing, buttons, trims etc but today, the average woman is wearing a tee shirt with some dye slapped on it. While a blouse and tee may provide the same function of covering a body part, the two product types are not the same caliber or cost of product. It would be a travesty if the average tee cost as much as a blouse once did, adjusted for inflation, so having the expectation the costs should be equivalent strikes me as greedy. For this reason, menswear is a good market to analyze. Apparel choices in menswear have evolved but not as radically. It’s better to look at outerwear, suiting and work attire. Prices of apparel in these categories is relatively static if not increasing slightly once adjusted for inflation and product caliber.
Doomsayers imply clothing costs less due to offshoring (with us presumably raking in the difference) but that isn’t completely true either. With respect to the cost of production, these have undeniably declined with offshoring -but also due to greater efficiencies. However, the kinds of costs incurred have evolved. Offshoring has reduced production budgets with the “savings” now being allocated to marketing and retail mark downs. This means the total costs getting product into consumer’s hands has remained static or increased with money shifted from production and applied to branding. Margins are thinner than ever. Nobody is raking it in to the extent doomsayers imply. The only change are spending priorities. Thank goodness consumers are spending 300% more than they were forty years ago.
Which is not to say I don’t wish people spent more on clothes but I think it would be more sustainable for all concerned if they bought fewer but better quality clothes for the same dollars.
Speaking of things not being as sucky as they’re purported to be: parents today are spending more time with their kids across all income brackets. The biggest gains are from men; more than doubling their time spent. And another thing, divorce rates continue to decline… there’s plenty of good news out there if you’re looking for it.
thanks for the breakdown….all is not doom and gloom.
I thought something was wrong with the graph when it appeared that people where spending more during the Great Depression and World War II, than now. Makes me wonder what people considered their “disposable income” during the Great Depression. Even at 9-10%, I doubt it was “extras”.
But the peak at the end of the war is interesting. I’m imagining Party dresses and soldiers returning home and buying civilian clothing.
Thanks for sharing and explaining.
It is so great to hear something positive :)
“there’s plenty of good news out there if you’re looking for it.”
Indeed. Great perspective! Thanks!
But disposable income is like the democratic republic of congo. There ain’t nothing democratic about it and you aren’t free to dispose of your income as freely as you like. For instance, families spend a larger % on housing than in previous decades. A generation ago, very few families required daycare and a second car so the mother can also join the labor force (to pay for the home).
There’s something fishy with that math; you can’t compare the amount spent on clothing with the percentage spent on clothing. For example, if each starting number were higher, the percent increase of the amount, rather than being over three hundred percent would be much less, and this in no way reflects a difference in the change of the percentage of disposable income. Thus the percent increase of the amount spent on clothing could be well over 300% and the percent increase of the amount earned could be only 143%, but there could be a significant decrease of the amount spent on clothing relative to the amount earned.
However, I agree that we shouldn’t expect the percentage of income spent on clothing to remain constant, nor is it necessarily a sign of doom and gloom to the industry (after all, it could be an indicator of a rise of innovation, competition, and efficiency). The economist who wrote that post does not think so either; his conclusion is that clothing is cheaper, not that people are buying substantially less clothing, but that the clothing they buy is cheaper and thus does not account for the same percentage of income.
Also I don’t think your criticism of the consumer price index is fair; the consumer price index is based on a constant basket of goods or services. It does not in any way compare previous well-made blouses with current average t-shirts. Nor can this basket be based only on suits and outerwear because other factors (such as a still present need for handwork for these items or an increase in efficiency for other clothing items due to technology) might distort the result.
@ Claro Rico:
The graph does not show that people during the Great Depression were spending more than today. The values on the y-axis are percents. All the graphs show is that people spent a greater proportion of their income on clothing. And all disposable income means is the total income minus the taxes (unlike discretionary income, it does not exclude necessities).
I hope that helped to clarify some things. :)
Hoorah for you! Thank you for this post. Not only are you right on the money, but here’s the bottom line….if sales are down, why are there still stores out there?…what are they selling?…air! There are more stores today than I remember there being in the 70’s or in the 50s (uh-oh, showing my age again!). More diverse products, more selections, even though (although not enough) more sizes. So if sales are down, does it stand to reason that the market place is offering more in an area where sales are down? The market place just doesn’t run like that. You make some great points, and they support what’s happening in the market!
@ Britannica, the CPI is not quite a constant basket, or we’d still have buggy whips and vacuum tube radios in there. The basket is re-calibrated every few decades, to reflect what currently is purchased by the average consumer.
So the type of clothing we buy is definitely reflected in the CPI. And the average adult woman’s wardrobe has changed considerably since the 1930s, changed toward less intricate clothing. [The current summer outfit of a t-shirt, capri pants and sandals costs a lot less than the 1940s era detailed dress, summer jacket, hose (and girdle), shoes and hat.] So it does make sense that we are spending less money per outfit.
But on average, we have far more outfits than people did in the past. You never heard of room-sized closets in the 1970s, or closet organizers … though each outfit costs less, we have far more items than we used to.
“Don’t let statistics get you down, do the math.” That’s an excellent summary for many things you see on the net, not to mention in the press…
@LizPf
I haven’t found the list of what’s currently (or has been) in the market basket, but all the same, I think these concerns do not play a large role as the graph shown by the economist runs only from 1992 to 2010.
@Marie-Christine
Statistics is math. If you feel that there is something wrong with cited statistics, then question the sampling method or ask what they actually tested (I heard of a case where a candy company proved that chocolate improves people’s math abilities- how did they define math abilities? Counting backwards by sevens) or ask if the conditions for a test were satisfied or ask what their probability of making a type 1 error was. The math behind it is usually correct (it’s mostly all done by computers these days), but the reasoning may not be.
LizPf
The CPI isn’t a consistent basket but they make quality adjustments to keep the index data consistent. Also, the items are resampled frequently to keep current with technology. I don’t think this is a major issue with garments since the technology in this industry seems to evolve slower than something like electronics.
In general, I always tell people to analyze the stats. I don’t know why the author chose to measure clothing price as a proportion of disposable income. We use less of our disposable income on clothing. What does that really say? Not much. I think everything the author has written is technically true using those measurements. However, his instruments are questionable in my opinion. There have always been spending shifts. Just looking at the CPI index for clothing, we see that prices have increased because the index is rising.
I think the graph comparing the apparel index to the all items index is interesting. However, if you take any individual category of the CPI and compare it to the all item category it will probably look the same.
Purely anecdotal: In 1964 I was given an allowance of $125.00 to purchase my first year of college wardrobe. I got my everyday clothing, Sunday outfits, ‘date outfits’, little black dress, shoes, coat, rain gear, underwear, hosiery and nightgown and robe and a new watch. I always thought I was “well dressed”.
The inflation rate is reported as ~ 4.35% per annum and a 1964 dollar’s 2009 equivalent is $6.80 per the ‘dollartimes’ site – http://www.dollartimes.com/calculators/inflation.htm
In today’s dollars that 125.00 x 6.80 = 850.00.
In 2009 My 2nd granddaughter headed off to college after spending a budget of $2800.00 for a similar sized and quality “wardrobe”.
Wow you guys are smart…my head is spinning with all this math stuff. It just seems strange how a multi BILLION dollar industry is declining…the day that clothing sales stop is the day the earth stops turning. I don’t read the doom and gloom…I like for my head to be in the clouds. :)
Thank you. I always roll my eyes at statistics, and ironically, it was my favorite class in college thanks to a great teacher.
Your post reminds me of the book “How to Lie With Statistics.” http://www.amazon.com/How-Lie-Statistics-Darrell-Huff/dp/0393310728
Just a couple of comments to clarify the meaning of this:
A declining percentage of expenditure on clothing as a percent of income suggests that the good in question is a staple (as opposed to a luxury). Clothing, excluding the high fashion variety, is certainly that. Food also fits that classification. These industries will face a declining share of income for the foreseeable future.
Economists use the terminology “income elasticity,” which is defined as the (% increase in expenditure on the good) divided by (% increase in income). There are even goods with a negative income elasticity – we call those “inferior goods.” Such goods lose expenditures when income rises – and as recently occurred during the recession, actually gain expenditures when income falls – goods like beer and used cars fit this classification.
None of this tells that the industry in question is dying. Food, clothing, beer making and used car sales are not going away anytime soon. All it tells us is that these industries respond in certain ways to income growth.
You might be wondering what industries are growing faster than income. Cell phones and services would be a good example. 20 years ago, my monthly phone bill was about $25 (adjusted for inflation, perhaps $35). My last month’s cell phone bill for my family was about $160. My phone expenditures has clearly risen faster than my income. I suppose you could say that expenditures have switched from clothing to cell phones. I’m not sure that’s good or bad news, but I can now be called by telemarketers anytime, anywhere.