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A very interesting chart on long-term trends in consumer spending appeared in this NY Times story about home prices and housing costs as they relate to the U.S. economy.
Did anyone have any idea that health care costs played such a big role in personal spending before and after World War II? More recently, we should be thankful for the advances in food production and the waves of cheap imports or Americans would be even more stretched.
Yesterday, automakers in the U.S. reported the worst sales since 1983 and not even the ongoing troubles at Toyota seem to have been able to cushion the fall, the graphic below from this story at CNN/Money offering a reminder of how much the “Cash for Clunkers” program boosted sales last year.
Industry sales also fell 5% from July levels. August sales typically outpace July, as deals become available on older models ahead of the fall introduction of new model year cars. August sales would equate to an annual sales pace of about 11.5 million vehicles.
“Car buying is far from repaired, and consumers hesitate before they make a big ticket purchase,” said Jesse Toprak, an analyst with the auto pricing Web site Truecar.com. “It shows that the recovery is going to be much slower and more painful than expected.”
They used to say, “what’s more important than how the 5 percent unemployed spend their money is how those 95 percent who still have jobs spend theirs”. It seems only the numbers have changed, that is, from 5 to 10 percent unemployed.
Of course, Mercedes is reportedly having a blockbuster year…
John Ulzheimer, President of Credit.com, provides a few more details about the surge in credit card company mailings for “Professional Cards” that are exempt from new regulations imposed by the Card Act (see the previous post for some context).
I’m probably the exception to the rule here, but, it seems to me that unless you have an excellent excuse (e.g., medical bills or some other emergency), if you’re over the age of 30 or 35 and you’re paying credit card companies any money in interest or fees, you’re going about your finances all wrong and you deserve to be their debt serf.
More evidence that banks and other institutions are already finding ways to skirt recently enacted regulations designed to protect consumers and will, someday, probably make an even bigger mess than the one the nation is still in the process of cleaning up comes in this WSJ report about purveyors of credit cards becoming quite creative recently.
Amid all the junk mail pouring into your house in recent months, you might have noticed a solicitation or two for a “professional card,” otherwise known as a small-business or corporate credit card.
If so, watch out. While Capital One Financial Corp.’s World MasterCard, Citigroup Inc.’s Citibank CitiBusiness/ AAdvantage Mastercard and the others might look like typical plastic, they are anything but.
Professional cards aren’t covered under the Credit Card Accountability and Responsibility and Disclosure Act of 2009, or Card Act for short. Among other things, the law prohibits issuers from controversial billing practices such as hair-trigger interest rate increases, shortened payment cycles and inactivity fees—but it doesn’t apply to professional cards.
Until recently professional cards largely had been reserved for small-business owners or corporate executives. But since the Card Act was passed in March 2009, companies have been inundating ordinary consumers with applications. In the first quarter of 2010, issuers mailed out 47 million professional offers, a 256% increase from the same period last year, according to research firm Synovate.
I’ve noticed these coming in the mail lately, but, like every other credit card solicitation, they quickly end up in the circular file. There has been only one exception though. We recently took American Express up on their gold card offer in return for getting a free Bose SoundDock Music System after we make $100 in purchases. The annual fee goes from free to $175 after a year, so, you know we won’t end up being long time gold card holders.
It’s not clear whether overeating and obesity are the perfect allegory for a consumption based economy that has finally run aground (e.g., where are the rising and falling asset prices?), but Michael Pento nonetheless transforms many of today’s economic problems into something that anybody can understand in this commentary at Real Clear Markets.
A morbidly obese gentleman labored into Dr. Hayek’s office suffering from severe chest pain. The patient also complained that he was unable to consume his usual 10,000 calorie-per-day diet; in fact, he was feeling so sick that he could barely scarf down 9,000 calories. He noted that his love for food remained as strong as ever, but his body just wasn’t keeping up with his demands.
After having a thorough look at the patient, the good doctor could not find anything wrong outside of the patient’s extreme portliness. After a moment of reflection, he delivered to his patient a troubling diagnosis. He explained that the chest pain stemmed from the strain the patient’s 500lb body was putting on his heart, and that the lack of appetite was his body’s attempt to protect itself from this imbalance. Dr. Hayek’s prescription was simple: the patient had to dramatically reduce his consumption while undertaking a moderate exercise program, with the goal of losing 250lbs as quickly and safely as possible. Dr. Hayek was aware that it would be a physically painful and emotionally difficult process for the man, but it was the only way to avert a life of suffering – or even a heart attack.
Of course, it should come as no surprise that Dr. Keynes across the street has a completely different prescription for this gentleman’s “temporary lack of hunger”. This is well worth reading in its entirety and its simplicity goes a long way in explaining why the American public now seems to favor the treatment of Dr. Hayek over Dr. Keynes.
A report in today’s Wall Street Journal reminds us how unlikely it is that the baby boomer-led U.S. economy as we once knew it will ever be restored. Incomes, savings, investments, and consumption are now entering a new and very different era where all four seem to be going in the same direction – down. The decline in spending by retirees is clear to see in the chart below and baby boomers will probably have to cut back even more.
The diminishing work prospects will require many older folks to make do with less - a discouraging outlook for firms hoping to sell them everything from dinners to cars.
As of 2008, the latest data available, people aged 65 to 74 were spending 12.3% less than they did ten years earlier, in inflation-adjusted terms. They cut spending on cars and trucks by 46%, household furnishings by 35% and dining out by 27%. At the same time, they spent 75% more on health care and 131% more on health insurance.
That’s a pretty remarkable shift in spending – from cars, clothes, and dinners out to monthly meds. Sadly, the health care industry is likely to be about the only “engine” for economic growth in the U.S. for some time to come.
By Tim Iacono, Since 2005
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