U.S. consumer spending on mobile phone, broadband and other communication services is not a very-good predictor of where the economy is, most of the time. The reason is that spending on such services is so stable, averaging between 2.2 percent and 2.5 percent of household spending. Though consumers might shift a bit at the margins duirng tougher times, they do not necessarily spend much more during buoyant times.
For such reasons, one cannot predict very much about the potential health of the economy by looking at consumer behavior in the area of communications spending. Credit availability, on the other hand, almost always tells us lots.
According to the Federal Reserve consumer credit report for July 2009, consumer credit fell almost $22 billion to $2.74 trillion. The figure has been dropping fairly steadily since the middle of last year.
The July number represents an annual rate of decline of more than 10 percent. Bluntly, the government still has not discovered a way to get large financial firms to loan money, and the economy is not likely to recover sharply until it does.
reviewed the data and told Reuters, “There is no way that this recovery can be sustained unless we see a pickup in household spending," says Bernard Baumohl, chief global economist at The Economic Outlook Group.
The Fed data says a great deal about what is wrong with programs to revive GDP growth. Money spent on long-term infrastructure projects and healthcare may be well-intended and even completely necessary, but that capital does not have the capacity to put people back to work quickly or get them to spend money that they genuinely believe that they do not have.
So the 2009 holiday spending season may be the most important one in memory. If retail spending is flat or declines, it likely will mean that the hibernation of the consumer will continue well into next year.
The good news is that traditional measures of recovery seem to be perking up. The bad news is that the recovery seems fragile. Still, as the saying goes, it is "darkest just before dawn." The recovery is inevitable. The issue many raise is the glide path up from the bottom.
The good news for communications service providers is that the business is structurally stable, year in and year out. The bigger problem remains the structural change in revenue models, away from voice and towards data services. If historic patterns hold, even with a robust economic recovery, consumers will not spend very much more than they do now.
Business behavior is different, owing in part to the changes in employment that can drive spending or restrict it. Most of the revenue changes one typically sees in a downturn are caused by business spending, not consumer spending. So business spending is more contingent on employment changes.
You can make your own guess about the pace of hiring during the recovery. Even there, though, there are changes. Voice lines tradtiionally have been where we have seen the incremental changes. These days, the insistent pressure is from bandwidth demands, which increase steadily each year, almost irrespective of headcount.
If you had to make a guess, you probably would do well to pay close attention to mobile and fixed broadband as the places where growth will be steady and measurable, no matter what the pace of recovery.
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