When it comes to consumer spending, it seems that happy times are indeed here again.
Not so fast, though. Consumer confidence might be up, but time has shifted perceptions of “need” versus “want.”
That’s the result of Prosper Insights & Analytics’ annual list of untouchables and expendables, which gauges where consumers are willing to part with cash — and where they aren’t.
In terms of sheer ranking, what is considered expendable and untouchable “really hasn’t shifted all that much,” says Phil Rist, Prosper’s executive vice president of strategic initiatives.
What has changed is consumer sentiment. In December, Prosper’s monthly consumer survey showed consumer sentiment at a 15-year high. Still, 36 percent of those surveyed say that the U.S. economy is causing them to spend less overall.
And nearly four in 10 say they’ve shifted their focus from what they want to what they need. That figure is even higher for those with an income of less than $50,000 (43 percent) and those aged 18-34 (41 percent). Prosper terms this “cautious consumerism.”
It’s in that shift — of want to need — where much of the untouchable/expendable list resides. Over time, Prosper has asked about typically expendable items: luxury goods, eating out and entertainment. Here’s a deeper dive into what consumers are saying.
First things first
There’s no denying that consumer confidence is fluctuating. In Prosper’s monthly gauge, consumers are bullish on the U.S. economy. The January gauge dropped slightly from December but still showed a 23 percent increase over January 2016: Rist notes that it was the highest January since 2002.
When asked if they were optimistic about personal finances improving, the outlook was mostly positive for consumers. Overall, 45 percent say yes, with men (48 percent) and those with an income over $50,000 (50 percent) particularly high. But it was the outlook for those aged 18-34 that was especially striking, with 58 percent saying they expect 2017 to be better personally than 2016.
Those over 55 are the least optimistic, with only 34 percent expecting a better outlook in their personal finances.
With more positive personal finances, consumers know exactly where they’ll spend that cash flow: vacations. On average, vacations ranked as the area in which consumers expected they would spend more, with those 55-plus
(38 percent) and those with a $50,000-plus income (41 percent) outranking the overall average of 37 percent.
That might be because vacations remain an area in which those who have cut spending have been most likely to trim. On average, 46 percent said the vacation budget has taken a hit. Women (48 percent) and consumers 55 and older (54 percent) have been more likely to cut vacations.
Younger people said they’d put their largesse into apparel (39 percent), outpacing their plans for a big trip (35 percent). Apparel also ranked highest for those with an income below $50,000, with 35 percent saying they’d spend more in this category. For every other demographic, apparel spending ranked second.
Spending on a car/truck ranked third for every demographic except those 55 and over, who ranked home improvements as an area to park extra cash.
Willing to sacrifice
While they know where they want to spend any windfall, nearly four in 10 consumers say they have cut back. Those with an income below $50,000 (45 percent) and consumers aged 18-34 have cut back the most (45 percent). They also are more likely to say that they’re planning to start cutting back, with 11 percent of those 18-34 and 10 percent of those with an income below $50,000 intending to reduce spending.
This is nowhere near the cutbacks revealed in the 2008 survey, taken just after the start of the Great Recession and a few months after the collapse of Lehman Brothers. During that time, an average of 64 percent said they had cut back. Women (69 percent) and those in the 35-54 age bracket (68 percent) were most likely to tighten the purse strings.
In 2008 and in 2016, apparel, dining out and vacations were the areas of the budget that most were willing to trim.
So where aren’t consumers willing to trim? That’s where the “untouchables” come in.
The mobile story
It’s no surprise that consumers are willing to invest extra income on mobile spending. On average, 57 percent of consumers say basic mobile/cell phone service was “untouchable”; those 18-34 (60 percent) were slightly above the overall average, but it’s worth noting that more of those 55-plus (59 percent) also ranked this as a budget must-have.
In 2008, 64 percent of consumers said basic cell phone service was untouchable. Women (70 percent) and those with an income above $50,000 (72 percent) were particularly adamant in this area.
That change doesn’t mean that cell phones are any more expendable now than they were in 2008. In fact, consumers are willing to transition spending to mobile phones that offer text, photos and video. Today 51 percent of consumers say this type of mobile phone was untouchable, with those 18-34 (61 percent) well above average.
In 2008, just 23 percent of consumers called expanded mobile phone service untouchable. Those 18-34-year-olds were clearly the early adopters; then, 42 percent in that age group said they wouldn’t live without texting, videos or photos.
Mobile phone services aren’t all that has changed. Upgraded mobile devices, such as smartphones and tablets, have increased dramatically. In 2008 — just one year after the introduction of the iPhone — only 12 percent of consumers considered this untouchable. Those aged 18-34 ranked higher, but still topped only 20 percent.
Now 42 percent — 50 percent of those aged 18-34 — say “hands off” to any cuts in this area.
“This is an interesting shift, because consumers use Internet and their mobile devices to manage the rest of their discretionary spending,” Rist says. “They look at the products they want to buy and the places they want to go explore.”
The wrong fit
These days, more consumers are willing to go without a pair of jeans than the phone that goes into their pocket. Between 2008 and today, the number of consumers who say that a new pair of jeans is untouchable has remained somewhat flat at around 20 percent. Even those aged 18-34 don’t rank denim high on their list of untouchables: Only 26 percent say jeans spending was untouchable.
If the jeans are shabby, apparently the shoes can be too. Slightly more consumers consider a new pair of shoes untouchable, and forget that sexist stereotype: Men are more likely than women (27 percent versus 25 percent) to say shoes were untouchable. Those aged 18-34 are slightly more likely (30 percent) to rank shoes as untouchable.
When it comes to shopping for apparel overall, there have been subtle shifts in where consumers like to do it. In 2008, just 9 percent said shopping for apparel at specialty stores was untouchable. That is now up to 14 percent. Conversely, shopping for apparel at discount stores dropped from 43 percent to 39 percent.
Despite the woes in the department store sector, consumers see department store apparel shopping as slightly more untouchable with 24 percent of consumers labeling it so. That’s up from 19 percent in 2008.
No matter where the shopping occurs, luxury handbags consistently rank as the most expendable item. Only 12 percent of consumers rank it as untouchable, up from 8 percent in 2008.
High-end and costume jewelry is equally expendable, according to consumers, with only 12 percent ranking them as untouchable. That question was first asked in 2010, when 12 percent said costume jewelry was untouchable and 9 percent ranked high-end jewelry as untouchable.
High-end cosmetics also ticked up to 13 percent from 2008, when 9 percent of consumers called it untouchable.
Something new on the menu
Since 2008, more consumers are unwilling to cut out all aspects of dining out. But in every category — fine dining, casual, fast casual and fast food — well more than half of consumers consider this an expendable luxury.
Fine dining is the most expendable, with only 16 percent considering it untouchable. Those aged 18-34 (19 percent) are most likely to consider it untouchable.
At the opposite of the spectrum, fast casual is almost equally as expendable. Only 27 percent of consumers say that eating at restaurants like Panera is untouchable. Interestingly, those in the $50,000-plus income bracket are most likely to keep this as an untouchable budget item, at 29 percent.
Fast food is slightly more untouchable, with 33 percent of consumers saying so. Men (35 percent) and those with an income below $50,000 (36 percent) are slightly above average in this category.
When it comes to dining out, casual restaurants like Applebee’s and Olive Garden are about on par with fast food, with 33 percent of overall consumers ranking it as untouchable. Those 55-plus are above average in this area, at 38 percent.
Over time, all four dining-out categories have remained mostly flat, with fast food dropping slightly from 2008’s 37 percent untouchable to 33 percent. Fine dining was the only big mover, ticking up from 11 percent to 16 percent.
Still, consumers are increasing spending in some areas of food. Organic food is now considered untouchable by 18 percent of consumers. That’s up from 15 percent in 2008.
This category includes a few common misperceptions. Men (19 percent) are more likely to prefer organic than women (17 percent). While those aged 18-34 are the highest category at 22 percent, they are closely followed by those aged 35-54 (19 percent). Those 55-plus are well below average at 13 percent. And those with less disposable income — those who earn less than $50,000 — rank this as a higher priority (19 percent) than those in the higher income bracket (17 percent).
The purchase of gourmet foods has grown in its untouchability every year since the question was asked first in 2010. These days, 14 percent of consumers consider this untouchable. This is largely the same as organic. Men (17 percent) are more likely to rank it as untouchable than women (12 percent). Those aged 18-34 (21 percent) rank it significantly higher than other age groups while older adults really don’t care about gourmet foods at all (7 percent). Those in a lower income bracket (16 percent) consider it more untouchable than those in the higher (12 percent).
Gourmet coffee also has increased in its untouchability, from 17 percent in 2008 to 21 percent. Again, more men (22 percent) than women (20 percent) consider this untouchable. Those aged 18-34 rank it highest (25 percent), though there is not as great a gap with those 55-plus (16 percent). And those in the lower income bracket (22 percent) are more likely to consider it as untouchable than those in the higher (19 percent).
Food ranks as one of the biggest categories in which consumers have or have intended to reduce. On average, 46 percent say they have cut back in all four restaurant categories. Vacation spending is the only other category in which cuts have been so high.
Those in the lowest income bracket have cut back the most heavily in dining out, with about half of those who cut back saying they’d trimmed in this area. Those 55-plus have equally put the brakes on dining out, especially in fine dining and casual sit-down.
One doesn’t need to look much further than the stock charts of traditional media outlets to anticipate the changes in the entertainment category. In 2008, 61 percent of consumers — 72 percent of those over 55 — said basic cable was untouchable. Now 48 percent of consumers — 59 percent of those over 55 — keep basic cable in the untouchable category.
Premium cable has made small gains, with 30 percent of consumers saying premium cable services like HBO were untouchable. That’s compared with 25 percent in 2008.
Internet service has remained mostly flat, with about eight in 10 consumers saying it was untouchable.
Movie tickets have become slightly more untouchable (increasing from 18 percent in 2008 to 22 percent). Satellite radio service is also up, from 9 percent in 2008 to 16 percent in 2016. Club/social memberships, extracurricular sports clubs and gym memberships also ticked up slightly as more untouchable.
On-demand streaming services like Netflix and Hulu have doubled in their untouchability since 2010 — the first year the question was asked. Then, only 16 percent of consumers were unwilling to avoid binge watching. Today that’s up to 32 percent.
Taking care of me
While entertainment has seen slight moves upward, so too have personal services. In 2008, only 10 percent of consumers felt their maid service was untouchable, but it’s now 13 percent. In both surveys, those aged 18-34 ranked this area of spending as higher than the overall consumers.
Lawn care service also has increased in its untouchability, from 15 percent in 2008 to 20 percent. In both surveys, not surprisingly, those 55-plus ranked this as much more of a necessity than other consumers.
Both manicures/pedicures and facials have seen slight upticks in the level of untouchability since 2008, while haircut/color has remained mostly steady. Those aged 18-34 are more likely to consider a manicure/pedicure or facial as more of a necessity. Consumers 55-plus rank haircut/color as more untouchable.
Overall, Rist notes that digital services continue to outpace any physical good – even those that excel in their categories as untouchable don’t come near mobile and Internet.
“You really have to be a runway leader to be considered untouchable.”
Sandy Smith grew up working in her family’s grocery store, where the only handheld was a pricemarker with labels.