Adobe (Nasdaq:ADBE) today announced its new Digital Economy Project with the launch of three digital measurements of the U.S. economy. They include the Digital Price Index (DPI), measuring changes in online consumer goods prices, the Digital Housing Index (DHI), reporting adjustments in online housing searches, and the Job Seeking Index (JSI), measuring shifts in online job seeking activity. Two world-renowned economists -- Austan Goolsbee, professor of economics at The University of Chicago's Booth School of Business and former chairman of the Council of Economic Advisers for President Obama, and Pete Klenow, professor, department of economics at Stanford University -- are partnering with Adobe on the DPI.
By analyzing billions of digital transactions of nearly one and a half million products sold online, the DPI addresses deficiencies in traditional inflation reporting. While the DPI does not cover offline purchases like gasoline, it tracks digital transactions more accurately than any other current source. The official Consumer Price Index (CPI) compiled by the U.S. Bureau of Labor Statistics (BLS) for instance, must rely on consumer surveys to approximate the actual sales of each product category purchased by consumers. The DPI uses transaction data on the actual quantities purchased for, literally, millions of products and captures the data in real time.
“The Consumer Price Index infers what is happening to product prices via in-store price checking combined with consumer surveys administered every four years which, inherently, ignores newer products. The Adobe Digital Price Index data shows that an astonishing 80 percent of monthly online spend for electronics goes to new products that have been available less than a year,” said Mickey Mericle, vice president, Data Insights at Adobe. “Digital is filling the gaps in traditional inflation reporting. Real-time, large scale product pricing data is an increasingly important tool to assess the state of the economy and the tremendous volume of e-commerce data enables us to unearth macro-economic trends more accurately than ever before.”
Adobe is the first company to conduct a digital-centric analysis based on real-time access to price-paid data and actual quantities sold. Seven dollars and fifty cents out of every 10 dollars spent online with the top 500 U.S. retailers go through Adobe Marketing Cloud.* The DPI is based on the analysis of aggregated and anonymous data of eight billion U.S. website visits and 1.4 million products from January 2015 through February 2016.
Adobe Digital Index leverages the Fisher Ideal Price method, which uses actual quantities purchased to measure inflation and is recognized by leading economists as the gold standard for the calculation of inflation. No other organization can use the Fisher Ideal Price method today because they do not have enough data or sufficiently timely data to make these calculations. With the Fisher Ideal Price method, the DPI is able to take into account that online shoppers find better prices from a competing or substitute product if the price of an item suddenly increases. In addition, because the DPI measures quantities and does so in real- time, Adobe Digital Index is able to accurately capture the effect of major discount holidays like Black Friday and Cyber Monday.
DPI for Electronics & Groceries
The DPI launches with the analysis of two important consumer goods segments – electronics and groceries. Findings include:
- Electronics (YoY Change): The DPI shows prices for electronics have fallen by 10.4 percent between January 2015 and January 2016, which can be attributed to lower costs of manufacturing, technology advances and higher retailer discounts. The CPI doesn’t break out electronics overall, but reports deflation of 7.1 percent for computers and 14.4 percent for TVs over the last year between January 2015 and January 2016. In comparison, the DPI saw prices drop 13.7 percent for computers and 19.4 percent for TVs for the same period. Additionally, the DPI measures inflation for items not covered by the CPI such as tablets, which saw a deflation rate of 21.1 percent.
- Electronics (MoM Change): In February 2016, prices for electronics decreased 0.6 percent versus January, with TVs, computers, smart watches and cameras seeing the most deflation. For computers, prices dropped 0.8 percent in February versus January, and for TVs, prices decreased 1.5 percent in February versus January. November 2015 saw lower prices of nearly one percent in comparison to November 2014. In November, prices decreased on average by 4.7 percent, demonstrating the impact of Black Friday and Cyber Monday. The largest discounts are available during the holiday season, and prices normalize in January. DPI data is based on online transactions from approximately one million electronics products between 2015 and 2016.
- Groceries (“Food at Home”): Groceries make up 14 percent of people’s budgets according to the BLS. The DPI shows inflation of 0.7 percent between January 2015 and January 2016, in comparison to the CPI’s report of 0.4 percent deflation. The DPI covers 30 to 40 percent of online groceries for approximately 195,000 products, and is heavily comprised of groceries purchased online and picked up in-store. Prices for groceries purchased online increased 0.2 percent from January to February 2016, and the largest price spikes were for apples, eggs, meat and coffee.
With grocery products where substitution options are limited, like milk and eggs, the DPI tracks almost perfectly with the CPI. This indicates that the difference between CPI and DPI measures of inflation for groceries is due to shifting consumer preferences picked up by the DPI’s use of the Fisher methodology and due to differences in the mix of grocery products purchased online vs. offline. The top category for online grocery shopping is nonalcoholic beverages, while meat is the top category for offline shopping. However, more than 50 percent of online grocery shopping is focused on staples like meat, dairy, fruits and vegetables.
- New Products: An average of 80 percent of online spend for electronics goes toward new products, indicating the constant shift of consumer preferences, whereas 16 percent of monthly online spend for groceries is for new products. New products are defined as having been introduced in the last year.
"The CPI provides observations on a wide array of categories, but has always struggled to take into account the introduction of new goods,” said Professor Goolsbee. “By combining actual data from previous and current transactions, Adobe has opened the door to quickly and accurately identify the shifting patterns of consumer shopping and prices in the U.S.”
“Adobe Marketing Cloud data is incredible, providing new insight into U.S. inflation rates,” said Professor Klenow. “With the influx of digital and online commerce, we need an accurate view into inflation from that lens, and with the volume of data Adobe has access to, no other company is in a better position to assess inflation rates for product categories in real time.”
Job Seeking & Digital Housing Indices:
- Digital Housing Index (DHI): Online search for purchases and rentals is up 20.5 percent YoY in February. Housing searches spiked in the spring of 2015, with April and July accounting for the most searches. In August housing search began to slow, with a steady decline through December. Housing search data is obtained from the analysis of aggregated and anonymous data of two billion visits to U.S. real estate search websites from December 2014 through December 2015.
- Job Seeking Index (SJI): Online job seeking is down 10.3 percent YoY in February. During the same period, the BLS reported that the unemployment rate was down 10.9 percent (4.9 percent in 2016 vs. 5.5 percent in 2015). Adobe’s data comes from the analysis of aggregated and anonymous data of one billion visits to U.S. job search websites and top U.S. employer career pages from December 2014 through December 2016. Adobe measures searches of 20 of the top 30 U.S employers.**
Adobe Digital Index is expected to release the DPI on a monthly basis and expand The Digital Economy Project with more granularity, more categories and additional indices to improve visibility into the digital marketplace.
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