Sunday, May 18, 2014

Consumption Of Autos, Healthcare, and Student Loans

A big shift is occurring in what consumers are buying. Recently we are witnessing a shift from general consumer goods to more purchases of autos and healthcare. The first quarter GDP came out showing a huge drop yet these two sectors have been outperforming the economy.  If indeed online and auto sales are roaring up double digits at the same time healthcare spending has increased 4.2% it is only fair to assume small business and someone else is getting their ass kicked. Interestingly, this is all occurring as the government continues to pour out billions of dollars each month in student loans, many of these loans will never be repaid.

Many of the new cars hitting the road are really leases which show up as a sale, and many of them may be motivated because an automobile owner faced with a costly repair doesn't have money to put into their current vehicle. This allows someone in a weak financial position, such as those living on disability or student loans, to put themselves into an ego boosting vehicle that they cannot in reality afford, or need. I contend that super low artificial interest rates are making much of this possible. If I'm correct, much of the idea of "so called pent up demand" is secondary. It should be noted even with surging sales US auto companies are "hyper boosting" the economy by producing more cars than are being sold causing inventories to build.

Spending on healthcare took off in fourth quarter of 2013 as consumers rushed to beat projected increases in co-pays and premiums. According to Commerce Department data household outlays for medical services increased 4.1 percent from October through February, the biggest five-month gain since July 1992. Consumer spending climbed by $20.4 billion at an annualized rate adjusted for inflation in February with $13 billion of the increase coming from outlays on health services spurred on by Obamacare.

 About 5.4 million people have gained insurance since January according to estimates by the Urban Institute in Washington. This has unleashed pent-up demand for medical procedures that have been delayed sometimes for years and boosting out-of-pocket household spending on co-payments and prescriptions. Many people have seen large increases in their health insurance payments as a result of  Obamacare requirements. This represents a shift in spending and because wages and incomes are not rising as fast as spending in healthcare it is leaving many consumers strapped.
Incomes Are Flat, This Is a Shift In Spending

This means sales could slow at stores such as Wal-Mart and Target as middle-income households spend more on co-pays and deductibles. The spending of low income earners may be less affected as they benefit from Medicaid expansion and tax credits. Still it is important to recognize this shift for what it is and realize a  big question looms concerning how many of the people signing up for government subsidized healthcare will stick with the program, it is expected that many people may stop paying the premiums due on their policy within a few months.

Last but not least the "helicopter money" known as student loans continues to be dumped into the economy. A student loan is designed to help students pay for university tuition, books, and living expenses, but many students are borrowing against their future at an almost unimaginable pace and using the money for things other then education. Too many young people and others taking student loans "living expenses" go on to include cars, trips, vacations and more. All this has a very dark side that will effect the lives of these borrowers going forward. With this easy money society is encouraging young people to take on this debt and to hock their futures.

All of the above facts point to an economy mired in growth that is unhealthy and akin to the, "I will gladly pay you Tuesday for a hamburger today" way of thinking. A story on the PBS Newshour just last week told of how many of those newly enrolled in the ACA were people being released from prison. The story told how this will be a big help for the ex-cons who often can't afford and go without healthcare. This means we are now paying for their healthcare and also much of the cost to employ thousands of people to encourage and sign them up for program. While this appears as economic growth in the GDP it is not the stuff of a vibrant economy.

 Footnote; This post dovetails with many of my recent writings. Other related articles may be found in my blog archive, thanks for reading, your comments are encouraged.


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