Smartphone money

The Journal on how phones are weighing more on family budgets

The Wall Street Journal is good to take a look at how smartphone bills are eating up a chunk of middle class household budgets, reporting that spending on iPhones and such is going up while families cut back elsewhere:

Americans spent $116 more a year on telephone services in 2011 than they did in 2007, according to the Labor Department, even as total household expenditures increased by just $67.

Meanwhile, spending on food away from home fell by $48, apparel spending declined by $141, and entertainment spending dropped by $126. The figures aren’t adjusted for inflation.

I’m glad the WSJ at least pointed out that these were nominal figures, but it’s unclear why the paper didn’t adjust them itself. If it had, its story would have been that much more interesting. This is an example of why talking about dollar figures in real terms makes sense even when the timespan is short and inflation has been extremely low.

Overall household spending has plunged since 2007 in real terms. The average household spent $53,851 back then but just $49,705 last year, an 8 percent decline. In other words, the average household spent $4,146 less in real dollars last year than it spent four years earlier—instead of $67 more in nominal terms. That translates into slack demand across the economy, which is why it continues to bump along the bottom.

But even if it looks a little less impressive in real terms, the WSJ’s thesis is correct. Adjusted for inflation, average telephone spending last year was up $22, or 0.5 percent a year since 2007. And at least some of that money has come at the expense of other spending categories, whose declines look even worse when adjusted for inflation.

Telephone bills have gone from 2.2 percent of household spending in 2007 to 2.5 percent last year, largely because other spending declined. It’s worth noting, though, that there hasn’t been a surge in phone spending. Back in 1984, the earliest data I can find, 2 percent of household spending went to telephones that were far less useful than what we have today.

And some of today’s telephone spending means less spending elsewhere. When one device consolidates functions formerly performed by the calendar, notebook, video camera, music player, map, newspaper, and more, you need to spend less on those things. It doesn’t seem that unlikely that the overall percentage spent on phone services has gone down over the last 27 years when you account for what used to be non-phone spending.

The ultimate problem, of course, is the decline in wages from four years ago. That $4,146 decline in real spending per household lines up fairly well with the decline in median household income during the same span.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum. Tags: , , , ,