April 27, 2016

Consumers Likely Spending Some of their Newfound Disposable Income on Dairy

 |  By: Fran Howard

Despite continuing economic weakness and uncertainty in the global economy, the U.S. economy continues to show resilience. Rising incomes along with lower to stable prices for goods and services means Americans have more money to spend and some of the additional cash is likely being spent on dairy products, both in restaurants and in grocery stores.  

“Americans are more confident in the job market. Some are just now returning to the workforce after having been unable to find work or having chosen to stay home with their kids or earn a degree in the aftermath of the global financial crisis,” says Sarina Sharp, agricultural economist with the Daily Dairy Report.

The rate of participation in the U.S. labor force dropped steadily throughout the Great Recession and in the years following. The labor force reached a low of 62.4% in September 2015.

“Since then, Americans have welcomed better opportunities and become more willing to trade leisure for a paycheck,” says Sharp. The labor force participation rate climbed to 63% in March, and the average working American earned $25.43 per hour, 2.3% more than the previous ago, according to the March jobs report, released in early April.

Last week, the Department of Labor said the number of Americans filing for unemployment benefits unexpectedly fell by 6,000 to a seasonally adjusted 247,000 for the week ended April 16, its lowest level since 1973.

In addition to the recent rise in incomes, low commodity prices have allowed consumers to purchase more for their money, enabling them to splurge on small luxuries like going out to dinner. In February, the average price of a gallon of unleaded gasoline at $1.77 was $2.25 lower than the prior year and $3.36 lower than a year earlier. Since February, however, gas prices have been on the rise, albeit modestly, she says.

“Purchasing power has also improved at the grocery store,” notes Sharp. In February, consumers paid an average of $3.23 for a gallon of whole milk, which was down from $3.50 the year before. Cheddar cheese at $5.37 per pound was also lower than the previous year at $5.48, according to the Bureau of Labor Statistics.

“With more money in their wallets, Americans have also been going out to dinner more often. Over the past 12 months, Americans spent 7.4% more at restaurants than they did the year before,” Sharp notes.

Also good news for dairy producers is that USDA expects an increase in per capita beef consumption this year due in large part to less expensive beef prices now that the nation’s beef herd is rebuilding.

“Over the past decade, beef consumption per capita dropped 11.5 pounds, so this marks a stark shift in trend,” notes Sharp.” The same fundamental forces—lower prices and improved consumer finances—could also boost demand for dairy products from today’s already robust volumes.”