November 2009

Consumer Spending Outlook
Marketers across the spectrum who are weary of the ongoing recession recently received a glimmer of hope that the economic downturn may be nearing an end. The Commerce Department recently issued a news release touting positive GDP growth for the third quarter of 2009.  While an increase in any economic activity is welcome news, enthusiasm generated by GDP growth was dampened somewhat by the department’s subsequent release that disposable income was down slightly and personal consumption expenditures decreased half a percent in September.  This news is a sobering reminder that high unemployment continues to hamper consumers’ ability to spend.  An analysis of sales data from NPD’s Aftermarket Industry Monitor, which tracks actual point-of-sale data from over 18,000 auto parts stores, shows the impact unemployment can have at the market level. 

Market Performance Varies
The national unemployment rate in August 2009 was 9.6 percent.  But that number varies greatly at the market level.  In August, Bismarck, ND had the nation’s lowest unemployment rate at 3.3 percent, while Yuma, AZ had the highest at 26.1 percent, according to the Bureau of Labor Statistics.  Among major markets, Detroit had a very high rate of unemployment at 17 percent, compared to Washington D.C. at only 6 percent.  Just as the economy varies by market, different markets post different results when it comes to auto parts store sales.

To better understand whether the unemployment rate has an effect on auto parts sales, we grouped markets into four segments according to their unemployment rates.  Markets were classified as being well below, below, above, or well above the national average.  Then, we compared auto parts store sales trends in these markets.  In general, we found that markets with lower than average unemployment had higher sales growth than markets with higher unemployment.  While that finding may not be too surprising, a deeper look reveals some interesting differences. 

Aftermarket Growth by Market Unemployment Levels

Source: The NPD Group/Aftermarket Industry Monitor

Discretionary vs. Non-discretionary
Beyond top-line sales, there is a great discrepancy between front-of-store categories and application parts (or hard parts). The markets with higher unemployment had significantly lower sales results in front-of-store categories. These include many categories that economically-challenged consumers may see as discretionary, such as those relating to a vehicle’s appearance or accessories. Even many functional fluids that really are not discretionary but may be found in the front of the store, such as motor oil, are categories that consumers may be able to defer purchasing or find other ways to spend less on. 

In contrast, hard parts sales in high unemployment markets fared significantly better than front-of-store categories.  Consumers searching for work in these markets may find themselves unable to purchase a replacement vehicle during these trying times.  But these consumers still may depend heavily on an existing vehicle to continue the job search, transport other family members to work, and serve their households’ critical transportation needs.  As these vehicles need replacement parts, even cash-strapped consumers may find such expenditures necessary.  Hard parts sales in the highest unemployment markets even slightly outpaced the national average growth rate.

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