Huge Hole in Consumer Spending Data? Not So Fast

A BusinessWeek economist says the latest consumer spending figures contain a hole big enough to drive a truck through, but in reality it may be more like a pinprick.

If Hugo Chavez bought his iPod online, it could count as a U.S. domestic purchase. (Getty Images)

Michael Mandel of BusinessWeek’s Economics Unbound writes that the Bureau of Economic Analysis counts purchases made on American Web sites by people outside the U.S. in its data collection as domestic purchases. For example, an Ipod bought online and shipped to Canada would be counted as a U.S. purchase. “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.,” he warns. “It might be possible that Americans are actually cutting back on their spending — and we would never be able to tell from the numbers.”

However, a quick look at some data indicates that the numbers aren’t likely to be big enough to make a major difference. Last year, about $123 billion was recorded in online retail spending, according to Web-measurement company ComScore, but just 7% of the money came from overseas. That means for all of 2007, just $8.61 billion was spent by foreign consumers. Compare that to total consumer spending of $9.734 trillion last year.

Today, the Commerce Department reported that consumer spending rose by about $6.45 billion in May. Using some rough calculations we can try to extrapolate how much of that came from foreign online buyers. The Commerce Department said $32.4 billion was spent on e-commerce in the first quarter. If we average that out to a monthly number, we get about $10.8 billion. If 7% of that total came from overseas buyers, that translates to about $756 million, meaning U.S. consumers still spent $5.7 billion more dollars in May than April. Of course, if Mandel is right and foreign consumers are spending more than usual the $756 million estimate could definitely be higher.

It’s more difficult to track the effect it would have on the percent increase reported by the Commerce Department without knowing how much more or less foreign online shoppers spent in May than April. However, to move the reported increase (0.8% in May) by one-tenth of a percentage point, overseas buyers would have had to spend about $800 million (more than double the $756 estimate) more in May than they did the prior month, and that seems pretty unlikely. –Phil Izzo