August 2016 Digital Economy Project

© 2016 Adobe Systems Incorporated. All Rights Reserved.

ADOBE DIGITAL ECONOMY PROJECTAUGUST 2016 UPDATE

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

Main takeaways: August

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This month we’ve expanded the DPI to include the United Kingdom, featuring a subset of the categories already covered in the U.S. Including categories such as groceries, computers and televisions, the U.K. DPI shows that, despite a weaker pound post-Brexit announcement, prices have remained stable relative to their historical trends.

The DPI also shows a strongly connected global economy, with a 60% correlation between the DPI in the U.K. and in the U.S. for import-heavy categories such as televisions and computers. For less import-heavy categories such as groceries, the correlation is much smaller, at 20%.

For the three categories we analyzed, the U.K. shows more deflation than the U.S. After declining for two consecutive months, prices for air travel to the U.K. show signs of stabilization. U.S. results signal continuing economic health and low inflation:

In the U.S. DPI, we see seasonal increases in August for Appliances and Furniture, likely due to higher demand during the back-to-school season and preparation for Labor Day sales. Grocery prices remain stable after 5 months of consecutive declines.

Toy prices increased in August, partly driven by Pokémon-related merchandise, which had price increases of 4.4% in August.

Our U.S. Job Seeking Index shows that online job seeking activity declined by 14.9% YoY, signaling continuing health in the job market.

Our U.S. Digital Housing Index shows that online housing seeking activity increased by 14.2% YoY, which is not as strong as results we saw early in the year, but still shows a strong housing market


Adobe Digital Insights BackgroundBased on analysis of aggregated and anonymous data from Adobe Marketing Cloud:• Adobe Analytics and Adobe Mobile ServicesThousands 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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Adobe Analytics

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)


Adobe Digital Economy Project for the United Kingdom

• Pages 8 through 12 relate to the Digital Economy Project for the United Kingdom

• Comparisons to the CPI in those pages refer to the Consumer Price Index published monthly by the Organization for National Statistics (ONS)


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 3 billion website visits and 150 k products sold online

ONS: Consumer Price Index Adobe: Digital Price Index

Quantities Sold No YesProducts/quantities updated Annually DailyNumber of Products 180 k

(all categories)150 k

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

** Latest IR Europe Top 500 Report 2015


Quotes: August Update

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“New data sources such as those being used by Adobe provide innovative ways to understand our increasingly digital economy in real time. Many of these opportunities will be realised by bringing together independent, official statisticians and those using these new data sources and techniques in the private sector. Adobe's work is really interesting and developing trusted statistics using digital data could add significant value to official statistics.”

Jonathan Athow, Deputy National Statistician, U.K. Office for National Statistics


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 2.7% YoY in August, with very small price increases of .02% and .37% in July and August, respectively, with the August price increase likely due to seasonality.

• For computers, we see YoY deflation of 13.4%. The post-Brexit announcement price decreases in July (-1%) and August (-.7%) are normal relative to previous months

• The only area where we saw prices hint at an increase was televisions, where in July prices decreased only by .5% (compared to the average monthly decrease of 2.5%), but in August television prices seem to be back at their normal pace


Decline in U.K. online orders for televisions and computers

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Our data indicates a decrease in online sales in the two durable goods categories we analyzed: computers and televisions. While in May and June gross online sales in those categories were up by 33 and 28% year-over-year (as people naturally shift more of their spend online), in July they only grew by 16%, and in August they actually decreased by 10% YoY. Using the U.S. as a control, we see that the growth rate in online shopping has remained relatively flat in this same period: growth of 40.7% May YoY, 43.7% June YoY, 33.7% YoY in July and 30.2% YoY in August.


60% correlation in computers and televisions

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• For computers and televisions, 60% correlation on average between the DPI results in the US and in the UK in the last 12 months, showing how much of a global economy we really live in. For groceries, not as import-heavy, the correlation is only of 20%

• The U.K. shows more year-over-year deflation than the U.S. in all categories we analyzed: 1.2% more for computers, 4.4% more for televisions and 1.8% more for groceries

• It shows the value of the DPI in measuring inflation using prices and quantities across countries using a single, standardized methodology


Travel prices to the U.K. show signs of upward pressures

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• Travel prices to the U.K. seem to be stabilizing – flight prices are up 3.1% relative to July and are down by only 1% year-over-year while hotel prices only declined by .8% since July and are down 16% year-over-year


Adobe Digital Economy Project for the United States

• Pages 14 through 43 relate to the Digital Economy Project for the United States

• Comparisons to the CPI in those pages refer to the Consumer Price Index published monthly by the Bureau of Labor Statistics (BLS)


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 ** • $7.5 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 Adobe: Digital Price Index

Quantities Sold No YesProducts/quantities updated Every 4 years DailyNumber of Products 83 thousand

(all categories)2.2 million

(currently covered categories)Data Collection Frequency Bi-Monthly DailyData Availability Monthly DailyOffline Prices Yes NoLong history Yes NoAll categories of spending Yes No

** Latest IR Top 500 Report 2015


Quotes: August Update

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“If you look at the growth rate of the US economy, it's only moderate -- there are a lot of international risks and there is no sign of inflation. While our long-run prospects are excellent, the next 12-18 months are likely to continue to have some significant bumps.”

Austan Goolsbee, University of Chicago

“There has been little good, micro-level data on the real economy in the UK to help us understand the impact of the Brexit vote. The Adobe DPI data suggest that prices for groceries and electronics did not change significantly. It will be important to keep monitoring the data in the months ahead.”

Austan Goolsbee, University of Chicago


Special topics: Pokémon Go

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• Online sales of Pokémon-related merchandise in the U.S. have increased 227% between July 6th-Aug 31st when compared to the same period last year

• Prices for Pokémon-related merchandise in the U.S., which had declined by 2.9% in July, increased by 4.4% in August


Special topics: Louisiana Floods

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• While domestic flight prices decreased by 3.6% in August relative to July, flight prices to Louisiana saw no price decreases

• While domestic hotel prices decreased by 2.1% in August relative to July, hotel prices in Louisiana increased by 2%

• For product categories such as OTC medications, medical equipment and supplies, tools & building materials we see no significant price increases relative to other regionsDisasters have little impact on inflation in

advanced economies (…) In emerging and developing economies the impact of disasters can be large and persist for a number of years.

Reserve Bank of New Zealand, April 2016


Big data in DPI decreases uncertainty

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DPIBLS CPI

Appliances 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 were Thanksgiving and Black Friday

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


Measuring rapidly shifting consumer preferences

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• Electronics see an average of 80% of online spend on new* products**

• 16% 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)


July 2016 Recap

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MoM: July vs June MoM: July vs June Difference (percentage) Same Sign? YoY: Cumulative July 2015-2016 YoY: Cumulative July 2015-2016 Difference (percentage) Same Sign?

DPI CPI DPI vs. CPI DPI vs. CPI DPI CPI DPI vs. CPI DPI vs. CPIAppliances -2.4% -0.8% -1.6% Yes -6.6% -2.6% -4.0% YesComputers -1.2% -0.7% -0.5% Yes -12.8% -7.7% -5.1% YesDomestic Hotels 2.3% -1.5% 3.8% No 2.2% 0.0% 2.2% YesFlights -3.6% -8.5% 4.9% Yes -4.4% -4.8% 0.4% YesFurniture and bedding -0.2% -0.5% 0.3% Yes -3.4% -3.0% -0.4% YesGrocery -0.2% -0.1% -0.1% Yes -0.8% -1.6% 0.8% YesMedical equipment and supplies 0.6% 0.3% 0.3% Yes -1.0% 0.0% -1.0% YesNonprescription Drugs 0.3% -0.5% 0.8% No 0.1% -1.6% 1.7% NoSporting Goods -0.5% 0.2% -0.7% No -5.4% -1.7% -3.7% YesTelevisions -2.1% -3.8% 1.7% Yes -20.2% -20.0% -0.2% YesToys -1.2% -1.5% 0.3% Yes -6.0% -9.3% 3.3% Yes


August 2016 Summary

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• Main deflation in August:• Intl’ flights, Flights, Televisions

• Main inflation in August:• Appliances, toys, furniture and

bedding

YoY MoMAppliances -5.7% 1.8%Computers -12.2% -0.4%Electronics -11.0% -0.5%Flights -3.2% -3.6%Domestic Flights -6.2% -3.4%Intl Flights 1.2% -4.3%Furniture and bedding -3.3% 0.2%Grocery -0.9% 0.0%Domestic Hotels 2.3% -2.1%Intl Hotels -2.8% -0.2%Medical equipment and supplies -1.3% -1.0%Nonprescription Drugs -0.3% -0.8%Sporting Goods -5.7% -0.5%Tablet -20.9% -1.3%Televisions -20.9% -2.9%Toys -5.6% 0.3%


Appliances

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• Adobe DPI shows cumulative deflation of -5.7% YoY (August 2015 to August 2016)

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

• For August 2016, prices increased 1.8% vs July 2016 MoM

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 August 2016, prices decreased -3.6% vs July 2016 MoM

METHODOLOGY:

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


Airfare: domestic

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• Main YoY deflation for flights Oregon, Illinois and Colorado

• Main YoY inflation for Florida


METHODOLOGY:



Airfare: international

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• Adobe DPI shows cumulative inflation of 1.2% YoY (August 2015 to August 2016)

• Main YoY deflation for flights to Europe and Africa

• Main YoY inflation for flights to South America


METHODOLOGY:



Electronics

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• Main YoY price decreases for Electronics priced between $200 and $500


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 $1200 and $1600


METHODOLOGY:




Electronics: televisions

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


METHODOLOGY:




Electronics: tablets

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• Main YoY price decreases for Tablets priced between $350 and $550


METHODOLOGY:




Furniture and Bedding

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• 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

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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

• Adobe DPI shows cumulative inflation of 2.3% YoY (August 2015 to August 2016)

• Main YoY inflation for Nevada, Hawaii, Colorado and Tennessee

• Only state showing YoY deflation is New York



Hotels: international

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METHODOLOGY:

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


• Main YoY inflation for Oceania and North America destinations

• Main YoY deflation for African and European destinations



Medical Equipment and Supplies

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• Main YoY price decreases for Medical equipment and supplies priced greater than $135

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


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 $0 and $10


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


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 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 14.9 % YoY in August

• This is indicative of a strong labor market, with fewer people looking for jobs, which coincides with the government numbers


Digital Housing Index(DHI)


Online housing search growth slows

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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 up 14.2% YoY in August, which is not as strong as March-April, but is still a sign that search for housing remains healthy


Appendix

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June-July Official Government Statistics

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• GDP growth: 1.2% (Q2)• Wages growth: 2.6% (YoY)• Consumer spending: +0.4% (June) • Unemployment: 4.9% (June)• Housing Sales: +1.1% (June)• CPI inflation rates (YoY):

• All items: 1%• Housing: 3.5%• Medical Care: 3.8%• Gas: -15.4%• Commodities: -2% If you look at the growth rate of the US

economy, it's only moderate -- there are a lot of international risks and there is no sign of inflation. While our long-run prospects are excellent, the next 12-18 months are likely to continue to have some significant bumps.

- Austan Goolsbee


Digital Price Index: Fisher Ideal Price Index

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• 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.

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Methodology Comparison: Fisher, Laspeyres and Paasche


Annual Cumulative Inflation Rates


Electronics Deflation in Detail

• The average price paid for an iPad mini (all models) has decreased by about 40% since the iPad mini 1 was introduced in November 2012.

• Although the initial price tag of new models remains constant at around $400, the automatic discount of previous models causes the average price to consistently fall: when the iPad mini 3 was introduced at an average price of $450, the price for the iPad Mini 2 was reduced by 25% to $300.

• This data only includes iPad minis sold in retail websites


Inflation Rates by Price Bins, May (MoM)


Inflation Rates by Price Bins, May (MoM) – Cont’d


Job Seeking Online: Traffic Sources

• Direct traffic to employment-listing websites is higher than search traffic

• Search ranks second
