adobe digital economy project – november 2016

© 2016 Adobe Systems Incorporated. All Rights Reserved.

ADOBE DIGITAL ECONOMY PROJECTNOVEMBER 2016 UPDATE

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

Main takeaways: November

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Holiday season discounts resulted in steep deflation in November for categories such as televisions (-12.9% MoM), appliances (-6.7%), tablets (-6.2%), toys (-4.5%) and domestic hotels (-4.5%)

While international flights saw a 1.9% MoM increase in November, flights to Europe saw 5.1% deflation driven by double-digit MoM deflation for flights to Madrid’s MAD (-10.3%) and Rome’s FCO (-11.6%)

In a reversal from October’s DPI, several DPI categories show MoM deflation in November as a result of deep discounts from holiday sales over the Thanksgiving holiday

Holiday discounts in 2016 were higher for televisions, tablets, and toys, compared to the holiday season in 2015

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

Sugar and sweets (-0.6%), flour (-0.6%), fruits and vegetables (-0.6%), and meats (-0.4%) saw the largest MoM deflation, while eggs (1.6%), ice cream (1.2%), and juice (0.7%) saw MoM inflation

In the U.K., the DPI shows the first MoM increase in the price index for computers (1.0%), an increase in the price of groceries (0.5%), and a slowing of deflation for TVs (-0.7%), suggesting that Brexit impacts on durable imports coupled with a strong U.S. dollar could be pushing prices upward

Overall U.S. results signal a slight uptick in inflation, a strong labor market, and a stable housing market:

The U.S. Job Seeking Index finds that online job searches are down sharply YoY for another month in a row, with November searches down -17.5% YoY, suggesting continued strength in the U.S. labor market, though momentum maybe slowing

Our U.S. Digital Housing Index an increase of 11.5% YoY in online housing searches. While a strong increase over the prior year, November’s rise is the the second lowest YoY increase over the past 6 months


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

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AdobeAnalytics

AdobeMobile Services


Economist Advisors

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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(DPI)


Methodology – U.K.

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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


Adobe DPI in the United Kingdom

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• Our Digital Price Index in the U.K. for groceries shows that grocery prices have deflated by 1.6% YoY in October. Prices increased 0.5% between October and November, the largest MoM increase in food prices in the U.K over the past 12 months

• For computers, the DPI reveals a YoY deflation of 8.9% while MoMprices increased by 1.0%, the first time in the past 12 months that prices have increased MoM

• Similarly TV prices in the UK continue to fall YoY; the DPI shows YoY deflation of 19.3% between November 2015 to November 2016. Prices are declining slower this month (down 0.7% in November) than they were between September and October (down 1.7%) suggesting that Brexit impacts on durables imports might be beginning to put upward pressure on prices


Methodology – U.S.

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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

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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

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

• In computers, models priced above $1,200 showing the least deflation in the category

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


The Importance of detail: Black Friday

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

• Lowest prices for TVs in 2015 & 2016 were Thanksgiving and Black Friday

• Data demonstrates retailers trying to start sales earlier – the Sunday and Monday before Thanksgiving see low prices


Measuring rapidly shifting consumer preferences

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• 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)


October 2016 Recap

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MoM: September to

October

MoM: September to

OctoberDifference

(percentage)Same Sign?

YoY: Cumulative October 2015-2016

YoY: Cumulative October 2015-2016

Difference (percentage)

Same Sign?

DPI CPI DPI vs. CPI DPI vs. CPI DPI CPI DPI vs. CPI DPI vs. CPIAppliances 1.4% -0.8% 2.2% No -6.2% -4.0% -2.2% YesComputers 0.5% -0.1% 0.6% No -9.9% -7.2% -2.8% YesDomestic Hotels -0.7% -1.1% 0.4% Yes 2.9% 3.9% -1.0% YesFlights 1.5% 1.3% 0.2% Yes -2.9% -5.4% 2.5% YesFurniture and bedding 0.2% 1.2% -1.0% Yes -3.1% -2.0% -1.1% YesGrocery 0.0% 0.0% 0.0% No -0.9% -2.3% 1.4% YesMedical equipment and supplies 0.8% -0.1% 0.9% No -1.0% -0.8% -0.2% YesNonprescription Drugs 0.3% -0.8% 1.1% No -0.1% -1.4% 1.3% YesSporting Goods -0.1% 0.2% -0.3% No -4.9% -1.4% -3.5% YesTelevisions -1.8% -0.5% -1.3% Yes -21.9% -21.6% -0.3% YesToys -1.2% -1.4% 0.2% Yes -6.0% -9.8% 3.8% YesWeighted Average Inflation* 0.1% 0.0% 0.1% Yes -1.7% -2.6% 0.9% YesWeighted Aggregate Inflation, Less Grocery** 0.1% 0.0% 0.0% Yes -1.1% -1.0% -0.1% 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 CPI weights, so changes in grocery prices drive the majority of weighted average inflation.


November 2016 Summary

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• Main deflation in November:• Televisions, appliances, tablets, sporting goods,

domestic hotels, toys

• Main inflation in November:• International flights, domestic flights, medical

equipment and supplies

YoY MoM

Appliances -6.0% -6.7%Computers -8.1% -2.1%Electronics -11.4% -5.4%Flights -1.6% 1.6%Domestic Flights -3.9% 1.6%Intl Flights 1.1% 1.9%Furniture and bedding -3.3% -2.4%Grocery -1.3% -0.5%Domestic Hotels 4.3% -4.5%Intl Hotels -2.4% -1.4%Medical equipment and supplies 0.7% 0.8%Nonprescription Drugs 0.5% 0.0%Sporting Goods -5.6% -4.5%Tablet -21.8% -6.2%Televisions -23.0% -12.9%Toys -7.0% -4.5%


2016-2015 Holiday Season* Comparison

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• Larger discounts in 2016:• Televisions, tablets, toys

• Larger discounts in 2015:• Domestic hotels, computers, domestic flights

Holiday 2015 Holiday 2016Percentage Point

Differential

Appliances -5.59% -5.40% 0.19%Computers -3.87% -1.59% 2.28%Electronics -5.51% -6.31% -0.80%Flights 1.64% 3.21% 1.57%Domestic Flights 1.23% 3.21% 1.98%Intl Flights 2.15% 3.28% 1.14%Furniture and bedding -2.32% -2.21% 0.11%Grocery -0.13% -0.48% -0.35%Domestic Hotels -8.11% -5.15% 2.95%Intl Hotels -5.01% -3.65% 1.35%Medical equipment and supplies 0.01% 1.57% 1.56%Nonprescription Drugs 0.04% 0.32% 0.28%Sporting Goods -4.45% -4.56% -0.10%Tablet -7.94% -9.58% -1.63%Televisions -11.95% -14.43% -2.48%Toys -4.61% -5.64% -1.03%

* October and November for 2015 and 2016


Appliances

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• Adobe DPI shows cumulative deflation of -6.0% YoY (November 2015 to November 2016)

• Main YoY price decreases for Appliances priced between $600 and $1000

• For November 2016, prices decreased -6.7% vs October 2016 MoM between $600 and $1000:-7.2%, between $0 and $200: -3.6%

METHODOLOGY:

• The data used contains transactions for ~110 K products• Products include large appliances such as fridges, ovens, washers, dryers as well as smaller appliances such as vacuums, mixers, blenders etc.


Airfare

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• For November 2016, prices increased 1.6% vs October 2016 MoM

METHODOLOGY:

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


Airfare: domestic

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METHODOLOGY:



Airfare: international

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• Adobe DPI shows cumulative inflation of 1.1% YoY (November 2015 to November 2016)

• Flight prices showed continued decline to Europe (-5.1% MoM) and Africa (-1.1%)

• Largest price increases continued the second month in a row to South America (5.6% MoM)


METHODOLOGY:



Electronics

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

• For November 2016, prices decreased -5.4% vs October 2016 MoM greater than $1,500: -14.5%, between $0 and $200:-5.4%

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

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

• For November 2016, prices decreased -2.1% vs October 2016 MoM between $700 and $1200: -12.8%, between $0 and $300: -0.5%

METHODOLOGY:



Electronics: televisions

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

• For November 2016, prices decreased -12.9% vs October 2016 MoM greater than $2000: -32.7%, between $0 and $300: -14.5%

METHODOLOGY:



Electronics: tablets

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


METHODOLOGY:



Furniture and Bedding

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• Main YoY price decreases for Furniture and bedding priced between $150 and $250

• For November 2016, prices decreased -2.4% vs October 2016 MoM between $150 and $250: -4.8%, greater than $750: -2.2%

METHODOLOGY:

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


Groceries

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• For November 2016, prices decreased -0.5% vs October 2016 MoM

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

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METHODOLOGY:

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




Hotels: international

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METHODOLOGY:

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




Medical Equipment and Supplies

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

• Main YoY price increases for Medical equipment and supplies priced between $0 and $10

• For November 2016, prices increased 0.8% vs October 2016 MoM between $45 and $135: -3.8%, between $0 and $10: 1.5%

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

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• Main YoY price decreases for Nonprescription Drugs priced greater than $40

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

• For November 2016, prices increased 0.0% vs October 2016 MoM greater than $40:-0.2%, between $15 and $25: 1.3%

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

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• 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.


Toys

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

• For November 2016, prices decreased -4.5% vs October 2016 MoM between $70 and $200:-6.4%, greater than $300:-1.8%

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

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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 17.5% YoY in November

• Online job seeking sees another month of YoY decline, reflecting a tightening labor market. Declines were less steep YoY than the month previous, however, suggesting that momentum may be slowing.


Digital Housing Index(DHI)


Online housing search grows YoY

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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 11.5% YoY in November. While higher than the same month last year, the figure is the 2nd lowest YoY increase in the last 6 months.


Appendix

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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 – november 2016

Economy & Finance