BLS Consumer Statistics: What Do They Tell Us?

I stumbled across some Bureau of Labor Statistics (BLS) numbers the other day, outlining the average amount American household's spending on everything from clothing, to transportation, food, and housing. This is a treasure trove of data for a personal finance nerd like me. As I dug into the statistics though, I found myself getting a little discouraged by the whole thing. Somewhat surprisingly, it looks like the average "Consumer Unit" (what the BLS calls various groups of people living together) is making pretty good money: nearly $66k before taxes. But, unsurprisingly, we Americans are spending almost all of our income. Let's dig into the numbers:

My Summary of the Data 

(click for the full Economic News Release)

Before diving in, I should note that the Bureau of Labor Statistics defines a consumer unit pretty broadly: "Consumer Units include families, single persons living alone or sharing a household with others but who are financially independent, or two or more persons living together who share expenses". Complicating matters, my estimates for post-tax income are calculated assuming a married couple finding jointly, and only taking the standard deduction and two personal exemptions (no additional deductions for children). The figures would be very different for the average unmarried couple, single parent family, family with many children, people who itemize, max out 401ks, etc. State and local taxes are excluded from the estimates. The intent was to keep it simple and try to get at an 'average' family, but the average consumer unit probably has a drastically different after-tax income and savings rate than what I calculated.

Looking at the data from the Bureau of Labor Statistics, a few things jump off the page:

• According to the BLS report, the recent recession started a trend of decreased spending, with the low point occurring in 2010. By 2012, spending had increased enough to overcome the previous high, seen in 2008.
• Income increased for American Consumer Units, year over year, from 2010 to 2012. There is a 1.9% increase in pre-tax income from 2010 to 2011, and a 3% increase from 2011 to 2012.
• Yet while income increased during these years, spending increased at a greater rate: 3.32% from 2010 to 2011 and 3.49% from 2011 to 2012. The increase in spending also outpaces the rate of inflation over this time, as measured by the Consumer Price Index, indicating a real increase in spending. Along the same lines, my estimates show a trend of decreasing savings rates over the same period, going from 9.6% in 2010 down to 7.9% in 2012.
• Cash contributions saw the largest increase in any category in 2012: 11.2% over the prior year. The BLS states "this can largely be attributed to a 13.1% increase in cash contributions to churches and religious organizations".
• The next largest increase was in transportation: an 8.5% increase from 2011 to 2012. Gasoline prices were stable in 2012, meaning the increase "can be traced to a 17.2% increase in expenditures on vehicle purchases from 2011 to 2012".

In a nutshell, the additional income that Americans earned in 2012 went to churches and cars. There's a country song in there somewhere. (The pastor run off with my lady, and they took my Chevy, too. I'd chase after them if I could, you know, but I've gotta clock in at two...) 

The data might not be as bleak as the picture I'm painting with the chart above. For one, my math is pretty dubious and should not be trusted. Additionally, a line that caught my eye was that for personal insurance and pensions. If retirement savings represent a large portion of that category (and the drivers are not expenditures, like car insurance), then savings rates might be a lot higher than I'm showing in the final row. (Though I'm not optimistic on that front. Other reports are showing single digit savings rates as well: as low as 3.7% in 2012.)

Regardless, with 65% of the average consumer unit's post-tax income going to the relative necessities of housing, transportation, food, and healthcare, achieving a high savings rate seems unlikely unless some pretty drastic changes occur. What could we do to improve this situation? The easy answer is to pay Americans more. But my guess is that would have little to no positive impact for people living paycheck to paycheck. The hard answer, but the one I know works, is to reduce the $6,500 ($550/month) the average American family is spending on food, the $2,600 spent on entertainment, and the $9,000 they spend on cars every year. Sell the fancy car, eat out less often, find cheaper date nights. Address that nebulous "other expenditures" category. A big win could come from reducing the $17,000 spent annually on housing, but that's a fairly reasonable figure per month (about $1,400), depending on where you live in the country.

It's the boring answer that you keep getting hit over the head with on these personal finance blogs, isn't it? Reduce expenses, and build wealth through frugality. But hey, it's the truth, and it works. I have admiration for those who go out and increase income dramatically, especially those who hustle in the evenings and on weekends to earn something on the side. A lot of families earn much less than the $65,596 noted in the BLS report, and surely could benefit from additional income. But unless expenses are first understood, then addressed, it's unlikely that additional income is going to drastically change things. Getting expenditures under control has to be the first step. Depending on your income level, it might be the only step.

How does your family's budget stack up to that of the average American Consumer Unit? My guess is that readers of this blog are pretty frugal, and probably blow away the average consumer in just about every category. But is there any category in which you spend more than the average American family? (Ours is entertainment. We spend at double that on travel alone each year.)


*Photo is from Gabriel and Flickr Creative Commons.