Adobe Digital Economy Project - December 2016

© 2016 Adobe Systems Incorporated. All Rights Reserved.

ADOBE DIGITAL ECONOMY PROJECTDECEMBER 2016 UPDATE

© 2016 Adobe Systems Incorporated. All Rights Reserved.© 2016 Adobe Systems Incorporated. All Rights Reserved.

Main takeaways: December

2

The last month of 2016 shows several categories with MoM inflation between November and December, including televisions (7.8%), appliances (6.0%), tablets (5.4%), electronics (2.8%), and toys (2.7%)

The Adobe DPI introduces three new categories this month:

Alcoholic beverages (0.5% YoY inflation, 0.0% inflation MoM). Within alcohol, beer had the highest YoY inflation (2.9%), while spirits and wine both had YoY deflation (-0.6%)

Auto parts (-1.8% deflation YoY, -0.1% deflation MoM)

Tools & home improvement products (-2.1% deflation YoY, 0.7% inflation MoM)

At the close of the holiday shopping season, prices increased between November and December for all categories (except toys) by a larger margin in 2016 than in 2015 (1.9% average increase in 2015 vs. 3.55% increase in 2016)

In the U.K., computer prices rose as they did in the U.S. while televisions bucked the U.S. trend and saw MoM price declines in December, likely reflecting lower purchases of televisions in the U.K. over the same time period

Despite these large MoM increases, almost all categories show continued cumulative deflation year-over-year, especially in televisions (-19.8%), tablets (-16.1%), electronics (-9.7%), and toys (-6.9%)

Groceries, a category that represents the largest share of consumer spending in the DPI showed 0.5% inflation MoM

Contributing to inflation this month in groceries include MoM price increases in ice cream (2.0%), bakery products (1.7%), and milk (1.2%)

In the U.K., the Adobe DPI shows significant MoM inflation for computers (3.9%), slight inflation for groceries (0.4%) and slowing deflation (0.7%) for televisions


Adobe Digital Insights Background

Based on analysis of aggregated and anonymous data from Adobe Marketing Cloud:• Adobe Analytics and Adobe Mobile Services

Thousands of brands worldwide including two thirds of Fortune 50 companies rely on Adobe Marketing Cloud:• $7.50 of every $10 spent online with top 500 U.S. retailers go through Adobe Marketing Cloud **• Adobe Marketing Cloud powers:

• 20 of the top 30 U.S. employers• 9 of 10 largest hotel groups• 7 of 10 largest airlines

** Latest IR Top 500 Report 2015

3

AdobeAnalytics

AdobeMobile Services


Economist Advisors

4

Austan Goolsbee, University of Chicago Robert P. Gwinn Professor of Economics at The University of Chicago's Booth School of Business

Formerly served as President Obama’s Chairman of the Council of Economic Advisers

The youngest member of the cabinet of President Obama

Pete Klenow, Stanford University Professor, Department of Economics, Stanford University

Currently Visiting Scholar, Federal Reserve Bank of San Francisco

Member of editorial boards for Econometrica, American Economic Review, Quarterly Journal of Economics and others

© 2016 Adobe Systems Incorporated. All Rights Reserved.© 2016 Adobe Systems Incorporated. All Rights Reserved. 5

Digital Price Index(DPI)

Job Seeking Index(JSI)

Digital Housing Index(DHI)


Digital Price Index Methodology(DPI)


Methodology – U.K.

7

Based on analysis of aggregated and anonymous data• Fisher Ideal Price Index• $6 of every $10 spent online with top 100 European retailers go through Adobe Marketing Cloud **• Based on analysis 1 billion website visits and 100k products sold online

ONS: Consumer Price Index Adobe: Digital Price IndexQuantities Sold No YesProducts/quantities updated Annually Daily

Number of Products 180,000 100k(currently covered categories)

Data Collection Frequency Monthly DailyData Availability Monthly DailyOffline Prices Yes NoLong history Yes NoAll categories of spending Yes No

** Latest IR U.K. Top 500 Report 2015


Methodology – U.S.

8

Based on analysis of aggregated and anonymous data• Fisher Ideal Price Index• Adobe measures 80% of all online transactions from top 100 U.S. retailers ** • $7.50 of every $10 spent online with top 500 U.S. retailers go through Adobe Marketing Cloud **• Based on analysis of 15 billion website visits and 2.2 million products sold online

BLS: Consumer Price Index BEA: Personal Consumption Expenditures Adobe: Digital Price Index

Quantities Sold No No YesProducts/quantities updated Every 2 years Monthly Daily

Number of Products 83 thousand (all categories) 83 thousand (all categories) 2.2 million (currently covered categories)

Data Collection Frequency Bi-Monthly Monthly DailyData Availability Monthly Monthly DailyOffline Prices Yes Yes NoLong history Yes Yes NoAll categories of spending Yes Yes NoIndex Type Laspeyeres Fisher Ideal Fisher Ideal

** Latest IR Top 500 Report 2015


Big data in DPI decreases uncertainty

9

DPI CPIAppliances 0.15% 0.46%Airfare 0.08% 0.51%Computers 0.28% 0.49%Furniture and bedding 0.07% 0.31%Grocery 0.10% 0.12%Hotels: domestic 0.04% 2.30%Medical equipment and supplies 0.20% 0.39%Nonprescription Drugs 0.18% 0.47%Sporting Goods 0.12% 0.31%Televisions 0.24% 0.60%Toys 0.25% 0.59%


Inflation rates by price ranges

10

• Televisions have seen higher-ticket items deflate faster than lower-ticket items in 2015

• For computers, mid-range models priced between $700 and $1,200 showed the highest deflation last year

*Price bins are determined based on the price the product had when originally launched (first price).


The Importance of detail: Black Friday discount comparisons

11

• DPI captures the effect of major discount holidays like Black Friday and Cyber Monday because it measures quantities and does so in real-time

• Prices online for Televisions dropped later in November 2016 than in 2015, with more discounts during the Black Friday week (Monday 11/21 through Cyber Monday), which accounted for more than half of all Televisions units purchased between November and December

• Television prices then increased more in December 2016 than they did in December 2015, a sign that retailers were able to capitalize on later shopping


Measuring rapidly shifting consumer preferences

12

• Electronics see an average of 77% of online spend on new* products**

• 17% of monthly online spend for groceries on new products

* Products that have been available for 1 year or less** A product is defined as an item for purchase which has an unique identifier (such as a SKU)


Digital Price Index Findings(DPI)


Adobe DPI Findings in the United Kingdom

14

• Our Digital Price Index in the U.K. for groceries shows that grocery prices have deflated by 1.9% YoY in December. Prices increased 0.4% between November and December, the second largest MoM increase in food prices in the U.K over the past 12 months

• For computers, the DPI reveals a YoY deflation of 4.3% while MoMprices increased by 3.9%, by far the largest (and first double-digit) MoMprice increase in the U.K.

• Main YoY price increases for computers priced between £1,200 and £1,600

• Main MoM inflation also for computers priced between £1,200 and £1,600 (6.5%)

• TV prices continue to fall YoY; the DPI shows YoY deflation of 23.2% between December 2015 and December 2016. Prices are declining slower this month (down 0.7% in December) than they were between October and November (down 6.0%) but still are lower than in November (unlike in the U.S.) Sluggish T.V. sales in the U.K. in December could explain the difference.

• Main YoY price declines were for televisions priced over £ 2,000• Main MoM deflation for TVs priced above £ 2,000 (-3.4%)


November 2016 U.S. Recap

15

MoM: October to November

MoM: October to November

Difference (percentage)

Same Sign?

YoY: Cumulative November 2015-2016

YoY: Cumulative November 2015-2016

Difference (percentage)

Same Sign?

DPI CPI DPI vs. CPI DPI vs. CPI DPI CPI DPI vs. CPI DPI vs. CPIAppliances -6.7% -2.1% -4.6% Yes -6.0% -4.1% -1.9% YesAlcohol*** -0.6% -0.3% -0.3% Yes -0.3% 0.6% -0.9% NoAuto Parts*** -0.8% -0.8% 0.0% Yes -2.0% -1.4% -0.6% YesComputers -2.1% -0.3% -1.8% Yes -8.1% -6.7% -1.4% YesFlights 1.6% 1.4% 0.2% Yes -1.6% -6.8% 5.2% YesFurniture and bedding -2.4% -0.7% -1.7% Yes -3.3% -2.7% -0.6% YesGrocery -0.5% -0.5% 0.0% Yes -1.3% -2.2% 0.9% YesHotels -4.5% -7.3% 2.8% Yes 4.3% 1.8% 2.5% YesMedical equipment and supplies 0.8% 0.3% 0.5% Yes 0.7% -0.2% 0.9% NoNonprescription Drugs 0.0% -0.2% 0.2% No 0.5% -1.4% 1.9% NoSporting Goods -4.5% -0.7% -3.8% Yes -5.6% -1.7% -3.9% YesTelevisions -12.9% -5.5% -7.4% Yes -23.0% -24.8% 1.8% YesTools & Home Improvement*** -1.3% 0.1% -1.4% No -2.4% -1.0% -1.4% YesToys -4.5% -0.8% -3.7% Yes -7.0% -9.4% 2.4% YesWeighted Average Inflation* -1.2% -0.8% -0.4% Yes -1.7% -2.5% 0.8% YesWeighted Aggregate Inflation, Less Grocery** -2.2% -1.3% -1.0% Yes -2.3% -2.9% 0.7% Yes

* Weighted average inflation is calculated using CPI-U relative component weights (2014-2015) across the shared categories in the DPI and the CPI ** Grocery is a large component of the current CPI weights, so changes in grocery prices drive the majority of weighted average inflation. As we add more categories (like housing, auto etc.), these aggregate numbers will change. *** New categories introduced in this month’s Adobe DPI


December 2016 U.S. Summary

16

• Main deflation in December:• Domestic hotels, international hotels, domestic

flights

• Main inflation in December:• Televisions, appliances, tablets, electronics, toys,

sporting goods

YoY MoM

Alcohol*** 0.5% -2.1%Appliances -4.6% 6.0%Auto Parts*** -1.8% -0.1%Computers -6.5% 1.2%Electronics -9.7% 2.8%Flights 3.3% -0.7%Domestic Flights 1.8% -1.1%Intl Flights 3.5% 0.6%Furniture and bedding -3.8% 1.7%Grocery -0.7% 0.5%Domestic Hotels 4.1% -1.6%Intl Hotels -2.6% -1.1%Medical equipment and supplies -1.4% -0.2%Nonprescription Drugs -0.2% 0.4%Sporting Goods -5.7% 2.1%Tablet -16.1% 5.4%Televisions -19.8% 7.8%Tools & Home Improvements*** -2.1% 0.7%Toys -6.9% 2.7%Weighted Average Inflation* -1.1% 0.5%Weighted Aggregate Inflation, Less Grocery** -1.7% 0.6%

* Weighted average inflation is calculated using CPI-U relative component weights (2014-2015) across the shared categories in the DPI and the CPI ** Grocery is a large component of the current CPI weights, so changes in grocery prices drive the majority of weighted average inflation. As we add more categories (like housing, auto etc.), these aggregate numbers will change. *** New categories introduced in this month’s Adobe DPI


Alcohol

17

• Adobe DPI shows cumulative inflation of 0.5% YoY (December 2015 to December 2016)

• Main price increases for Alcohol priced below $10, with main price decreases for Alcohol priced between $40 and $80

• Prices for Beer show YoY inflation of 2.9%• Prices for Spirits show YoY deflation of -0.6%• Prices for Wine show YoY deflation of -0.6%

• For December 2016, prices decreased -2.1% vs November 2016 MoM

METHODOLOGY:

• The data used reflect transactions for ~150 K products


Auto Parts

18

• Adobe DPI shows cumulative deflation of -1.8% YoY (December 2015 to December 2016)

• Main YoY price decreases for Auto Parts priced greater than $200


METHODOLOGY:

• The data used reflect transactions for ~1.3 M products


Airfare

19



METHODOLOGY:

• The data used contains transactions for ~370 K flight routes• Includes associated fees, where applicable


Airfare: domestic

20


• Largest price increases in airfare were to Ohio, with YoY inflation of 9.7%

• Other large price increases for airfare were to Pennsylvania, with YoY inflation of 8.4%

• Other significant price decreases for airfare are to Georgia, with YoY deflation of -0.7%

• Largest price decreases are to airfare to Colorado, with YoY deflation of -1.7%


METHODOLOGY:



Airfare: international

21


• Largest price increases for airfare were to South America, with inflation of 17.7% YoY

• Other price increases for airfare include Oceania, with inflation of 2.4% YoY

• Largest price decreases were to Europe, with deflation of -5.7% YoY

• For December 2016, prices increased 0.6% vs November 2016 MoM

METHODOLOGY:



Electronics

22


• Main YoY price decreases for Electronics priced greater than $1500


METHODOLOGY:

• The data used contains transactions for ~1 M products• Products span across dozens of different categories such as televisions, laptops, Blu-ray players, desktops, tablets, wearables, headphones, video games, printers etc..


Electronics: computers

23


• Main YoY price decreases for Computers priced between $700 and $1200


METHODOLOGY:



Electronics: televisions

24


• Main YoY price decreases for Televisions priced greater than $2000


METHODOLOGY:



Electronics: tablets

25


• Main YoY price decreases for Tablets priced between $550 and $900


METHODOLOGY:



Furniture and Bedding

26


• Main YoY price decreases for Furniture and bedding priced between $100 and $150


METHODOLOGY:

• The data used contains transactions for ~173 K products• Products include interior and exterior furniture, mattresses and other bedding products


Groceries

27


• Prices for eggs show YoY deflation of -28.8%• Prices for meat and meat products show YoY deflation

of -1.9% • Prices for bakery products show YoY inflation of 2.2%


• Prices for ice cream show MoM inflation of 2.0%• Prices for bakery products show MoM inflation of 1.7% • Prices for milk shows MoM inflation of 1.2%

METHODOLOGY:

• Our dataset covers an estimated 30-40% of all online grocery purchases. It contains transactions for ~195k products• The mix of grocery products bought online is not the same as offline – the top category for online shopping is drinks (nonalcoholic), while for offline shopping it is meat


Hotels: domestic

28

METHODOLOGY:

• The data used contains transactions for ~250 K hotel properties• Includes associated fees, where applicable


• Prices for hotels in Nevada show the highest inflation among states measured at 11.8% YoY

• Prices for hotels in Florida show the lowest inflation among states measured at 1.3% YoY



Hotels: international

29

METHODOLOGY:

• The data used contains transactions for ~250 K hotel properties• Includes associated fees, where applicable


• Largest prices increases are for hotels in North America, with 5.4% YoY inflation

• Largest price decreases are for hotels in Asia, with YoY deflation of -3.6%



Medical Equipment and Supplies

30


• Main YoY price decreases for Medical equipment and supplies priced between $45 and $135

• Prices for diabetes-related medical equipment and supplies shows YoY inflation of 1.9%


METHODOLOGY:

• The data used contains transactions for 6,000 products• ” includes supportive and convalescent equipment, dressings and first aid kits, and medical equipment for general use


Nonprescription drugs

31


• Main YoY price decreases for Nonprescription Drugs priced between $0 and $10

• Main YoY price increases for Nonprescription Drugs priced between $15 and $25


METHODOLOGY:

• The data used contains transactions for 16 K products• Includes all non-prescription medicines taken by swallowing, applying on your skin (such as topicals), inhaling, as suppositories, or enemas.


Sporting Goods

32


• Main YoY price decreases for Sporting Goods priced between $40 and $100


METHODOLOGY:

• The data used contains transactions for ~300 K products• Products include small equipment and accessories (balls, gloves, uniforms) as well as large equipment such as treadmills, weightlifting tools etc.


Tools & Home Improvement

33


• Main YoY price decreases for Tools & Home Improvement priced greater than $600


METHODOLOGY:

• The data used contains transactions for ~653 K products


Toys

34


• Main YoY price decreases for Toys priced between $70 and $200


METHODOLOGY:

• The data used contains transactions for ~249 K products• Products include toys, games as well as playground equipment


Job Seeking Index(JSI)


Online job seeking continues YoY declines

36

METHODOLOGY:

• Based on analysis of aggregated and anonymous data from more than 1 billion visits to U.S. employment-search websites and top employer career pages

• Adobe Marketing Cloud powers 20 of the top 30 U.S. employers**

US online job seeking is down 14.5% YoY in December


Digital Housing Index(DHI)


Online housing search grows YoY

38

METHODOLOGY:

• Based on analysis of aggregated and anonymous data from more than 2 billion visits to U.S. housing search websites

Online search for purchases and rentals is up 13% YoY in December.


Appendix

39


Inflation rates by price ranges, cont’d (tablets)

40

• Tablets have seen higher-ticket items deflate faster than lower-ticket items

• The greatest price decrease and increase in November and December were for tablets priced between $350 and $600



Inflation rates by price ranges, cont’d (televisions)

41

• The highest priced televisions have have seen faster deflation than lower priced items

• The greatest price decrease in November and increase in December were for TVs priced between $600 and $1,000



Inflation rates by price ranges, cont’d (televisions)

42

• Mid-range computers have seen faster deflation than lower and higher priced models

• The greatest price decrease in November were for mid range computers between $700 and $1,200 while the greatest price increase in December were for lower priced models between $300 and $700



Digital Price Index: Fisher Ideal Price Index

∑𝑖𝑖=1𝑛𝑛 𝑃𝑃𝑖𝑖𝑖𝑖𝑈𝑈𝑖𝑖𝑖𝑖−1∑𝑖𝑖=1𝑛𝑛 𝑃𝑃𝑖𝑖𝑖𝑖−1𝑈𝑈𝑖𝑖𝑖𝑖−1

∗∑𝑖𝑖=1𝑛𝑛 𝑃𝑃𝑖𝑖𝑖𝑖𝑈𝑈𝑖𝑖𝑖𝑖∑𝑖𝑖=1𝑛𝑛 𝑃𝑃𝑖𝑖𝑖𝑖−1𝑈𝑈𝑖𝑖𝑖𝑖

• The Fisher Ideal Price Index uses quantities purchased on the current period (month) and a previous period (previous month) to determine actual consumer’s preferences. Instead of assuming that consumers preferences for what goods to buy are constant over a certain number of years, it is able to account for the fact that they are constantly changing what they buy.

𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹 𝜋𝜋𝑖𝑖 =


Methodology Comparison: Fisher, Laspeyres and Paasche


Adobe Digital Economy Project - December 2016

Economy & Finance