Structural Breaks and Future Growth of the Green Industry 1

Every industry undergoes changes, but structural changes can abruptly and radically alter business for many ﬁ rms in that industry. Identifying the substantial shifts in the green industry with regard to consumer spending can help the industry better understand its history. Using an econometric model of that same consumer spending data to look forward to the future can show ﬁ rms what might lie ahead. We analyzed the personal consumption expenditures for two items measured by the U.S. Bureau of Economic Analysis to identify structural breaks in the green industry. We then conducted an econometric forecast using that same data to predict future consumer spending projections to the year 2020. To accomplish this, we analyzed household expenditures for Tools (including gardening tools and equipment) and Plants (including seeds, ﬂ owers, and plants) from 1959 to 2014. We identiﬁ ed one industry structural break using the Schwarz criteria for Tools in 2006 and another one for Plants in 2007 and (separately) identiﬁ ed four breaks using Bayesian Information criteria: one break for Tools in 2006 and three breaks in Plants in 1986, 2003, and 2008. The potential causes of these breaks are discussed (e.g. housing bubble, ﬁ nancial market stress). Lastly, we employed an econometric model to forecast spending and show that it will grow from $65.15 and $86.52 in 2015 to $71.17 and $96.97, for Tools and Plants respectively, in 2020. cant events that change consumer spending can be better prepared for future events. This study investigated major potential changes in the green industry by analyzing household consumer spending on two items: horticultural Tools (including equipment) and Plants (including ﬂ owers, seeds, and plants). This investi-gation sought to identify the timing of industry-changing events, called economic structural break points. Since 1959, one econometric analysis showed that one structural break point for Tools occurred in 2006 and one for Plants in 2007. A separate analysis showed the same break point for Tools in 2006 and three breaks for Plants with the ﬁ rst one occurring in 1986, then 2003, and again in 2008. Our econometric model forecasts growth in consumer spending on Tools and Plants over the next ﬁ ve years. While it is diﬃ cult to pinpoint the exact causes of structural break points, most often they result from an economic crisis. Events like credit issues or having too many ﬁ rms that are highly leveraged can be an indication of impending structural breaks. Structural breaks occurring around recessionary periods normally cause lawn and gardening sales to fall since industry products tend to be discretionary goods by consumers (Hall, 2010). Structural changes around the most recent deep recession in 2008, showed that consumers reacted by cutting back lawn and garden-related expenditures signiﬁ cantly. However, econometric models using that same data forecast with good reliability that household expenditures on Tools and Plants should both increase over the next ﬁ ve years. This optimistic news should help provide conﬁ dence to ﬁ rms considering reasonable expansion in the coming ﬁ ve years.