Statistically Speaking: Home Furnishings: Following the Money

December 18, 2017  by Jane Chero in Economic News, Industry   

The top 20 percent of all households make over half (52.8 percent) of all income and pay 78.5 percent of all taxes. This still leaves these households who make over $105,600 per year with 48.6 percent of all disposable income. As would be expected, the lower income families spend a higher percentage of their income on food, shelter, utilities, gasoline, and healthcare, leaving less disposable income for non essentials. However, surprisingly, when it comes to home furnishings and equipment, the disparity in percent of income spent between the ranges does not vary significantly.

The annual mid-year Consumer Expenditure Survey report (mid 2015 to mid 2016) by the Bureau of Labor Statistics divides the 129 million households in the U.S. into 20 percent quintiles of around 25.8 million consumer units each from the lowest to highest earners. Not surprisingly, the majority of income earned before taxes along with the tax money generated and disposable income after taxes belong to households in the top quintile.

Income Groups

As shown in Table A, over three-fourths (75.4 percent) of total income comes from the top two quintiles. The average income for the highest 20 percent is $192,051 before taxes and the second 20 percent of average $82,561. The remaining three income segments make up 60 percent of U.S. households and earn less than $63,800. They account for under a quarter (24.5 percent) of all household income.

The majority of tax dollars, 78.5 percent, comes from the top income segment (Table B). And although the highest earning households pay on average 20.6 percent of their income to taxes, their share of total U.S. income after taxes is still at 48.6 percent, down from 52.8 percent before taxes. Paying roughly 10 percent of income to taxes, the fourth 20 percent quintile has an average of $73,827 of income after taxes – maintaining 23.5 percent share of all disposable income.

.

After taxes, the bottom three earning households bumped up to 28 percent of total disposable income but much of it will be swallowed by the essentials like food, shelter and healthcare. (Table C)

Household Characteristics

 

There are distinct household characteristics that separate the income levels as depicted in Figure 1. Most notable is that the higher the income level, on average the more people in the household. The highest 20 percent have almost double the number of people (3.1 persons on average) compared to 1.6 persons on average in the lowest 20 percentile. This reflects the higher income concentration of married couple families. The top 20 percent also have on average 2.0 earners while the lowest earning households have 0.5 earners. It also shows the lower the household income, the higher concentration of individuals over 65 years and the fewer the number of children. The highest income households have on average three vehicles, compared to less than one for the lowest group. All of these characteristics contribute to the things consumers buy for their households in conjunction with their ability to pay.

Spending on Essentials

Essentials like food, shelter, utilities, gasoline, and healthcare eat up much of the income of lower income families, leaving less disposable income for non essentials. Yet, as stated earlier, when it comes to home furnishings and equipment, the disparity in percent of income spent between the ranges does not vary significantly. Table D shows how the percent of income being spent on most essential goods or services declines as the income brackets increase. As expected, shelter consumes the greatest portion of each income bracket – at 17.5 percent for the highest earners on up to 25.1 percent for the lowest.

While households with more money spend a smaller share of income on essentials, the amount of money spent is much greater. For those in the lowest 20 percent, an average expenditure of food is $3,651 at 15.1 percent of their earnings, while the highest 20 percent on average spends $12,646 – just 11.3 percent of income. For furniture and equipment, all levels of income still spend between 2.6 percent to 3.3 percent of their incomes.

Household Furnishings and Equipment

Among home furnishings and equipment, the percent of income spent on furniture and major appliances are the two largest segments. Aside from the lowest 20 percent quintile at 0.6 percent share, all income levels use between 0.8 and 0.9 percent of their income on furniture purchases (Table E). While the share is roughly the same, the dollars spent differ greatly. With an average annual expenditure of $1,054 on furniture, the highest income segment spends twice as much as the segment below it ($514) and almost four times the amount as the second 20 percent segment ($267). (Note: The Consumer Expenditure Survey conducted by the Bureau of Labor Statistics which is the basis of this article tends to reflect lower average annual expenditures compared to the Personal Consumption Expenditures tracked by the Bureau of Economic Analysis.)

Similar to furniture spending, the share of income spent on major appliances does not change much between income levels – ranging from 0.4 percent to 0.6 percent of income, regardless of earnings. Since a refrigerator or oven is more likely to be considered a necessity compared to a new sofa or table, average expenditures do not vary as much with highest earning households spending an average of $482 and the lowest spending $108 (Table F).

Despite the similarity in percent of expenditures spent on home furnishings and equipment among income segments, the vast differences in disposable income put much of the purchases within the top 20 percent of households. As shown in Table G, 65.6 percent of total furniture expenditures come from the top two income brackets with 44.1 percent from the highest 20 percent. Major appliances and home textiles are somewhat less concentrated in the highest 20 percent of households with the bottom three income levels accounting for 40 percent of their total expenditures. At 48.1 percent of total expenditures coming from the highest earning households, floor coverings are primarily being bought by households making more than $105,600.

Middle income families at one time were the bread and butter of the home furnishings industry. Median household income now stands at $55,775. This places the third quintile or 20 percent of consumer units earning between $38,000 and $63,800 purchasing only 17 percent of all furniture. Most of the home furnishings industry, 65.6 percent of furniture purchases belong to 40 percent of households earning over $63,800 annually.

In the next issue:  Mapping age with the income.