Monday, October 5, 2015

Consumers And Shifting Buying Patterns

A big shift has occurred in recent years in the buying patterns of American consumers, much of this comes as a result of the government mandate on healthcare and the low interest rate policy of the Fed trickling down to the street. The fact that certain sectors have been outperforming the economy does not guarantee they will continue to do so. This spending shift tends to mask certain issues that will have a great deal of input into the nations long-term economic well-being. When we are told that both the sale of products online as well as auto sales are roaring at the same time healthcare spending has increased 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.

This Is A Huge Driver Of Auto Sales
Many of the new cars hitting the road are really leases which show up as a sale, and many of these 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 they don't need and cannot afford. I contend that super low artificial interest rates have been the catalyst making much of this possible. The idea that auto sales have exploded due to so called "pent up demand" may be secondary to the notion that our nation is on a binge of feel good self gratification. The low cost loans that have brought forward and spurred auto sales could be viewed as a "stimulus" package for the auto industry and manufacturing or as more proof we are on the wrong path. In coming months this sector will see margins squeezed as used car prices fall when millions of cars flood the market at the end of their lease program.

Spending has also soared on healthcare starting in fourth quarter of 2013 as consumers rushed to beat projected increases in co-pays and premiums spurred on by Obamacare. Millions of people have gained insurance because of the Affordable Care Act, but this has come at a cost, and while it 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 has soared. Many people have seen large increases in their health insurance payments as a result of  Obamacare requirements. As it created a boom in the healthcare sector it has siphoned money away from other areas of the economy.   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 Relatively Flat, This Is a Shift In Spending
This means sales have been mediocre at stores such as Walmart and Target as middle-income households have been forced to spend more on co-pays and deductibles. The spending of low income earners has been less affected as they benefit from Medicaid expansion and tax credits. Still it is important to recognize this shift for what it is as the country continues to integrate the ACA into the economy. A big question looms concerning how many people that currently are signed up for government subsidized healthcare will stick with the program after they have taken care of long delayed medical problems or when rates rise.

I would be amiss not to mention or recognize the growth in a sector I personally find very troubling and that is in what I will call the "online sector" that encompasses both the selling of wireless phones and services as well as internet-sales. In my defense to those who might think me backward or resistant to change, I was one of the first people to embrace the break with landlines by getting one of the first car-phones available and looked into computers back in 1980 when IBM was promoting its new 16k machine. My problem with the current internet craze is two fold and is rooted in concerns over the future well-being of our society as well as who holds power over this and are reaping the benefits. I concede that phone sales have been through the roof and feel this is altering our values and changing the way people interact, and not always in a good way. I'm afraid many people are losing the skill to communicate and relate to each other one on one. The second issue has to do with sales over the internet and how companies like Amazon are major job killers that wreck havoc when allowed to exploit the brick and mortar stores that line our streets and give our communities purpose.

What is being bought, and where the money comes from greatly influences the economy, and that brings us to the issue of the "helicopter money" known as student loans. We are seeing money showered into this sector of the economy at a rate never before witnessed. While a student loan is designed to help students pay for university tuition, books, and living expenses it is being used for far more. Many students are borrowing against their future at an almost unimaginable pace and using their student loan money for things other then education. Too many young people and others taking student loans "living expenses" have expanded to include cars, trips, vacations and more. All of 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. This has been done with several politicians alluding to the idea that at some point in the future government might simply wave repayment making those who have participated in these programs big winners.

All of the above facts point to an economy mired in the kind of growth that is unhealthy and akin to the, "I will gladly pay you Tuesday for a hamburger today" way of thinking. Last year a story on the PBS Newshour 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. It is important to understand that what people are buying and even more important where they get the money from has a direct bearing on the quality of the underlying  economy. Much of the spending we see is driven by a huge and growing national deficit and this is a big problem going forward.


  1. Leasing of automobiles is a financialization tool that allows consumers to buy more vehicle than they can actually afford. It will be quite amusing to see what happens to car prices once all these leases come to term along with all the "record" auto product (I mean dealer deliveries) not to mention all the repossessions as corporations trim back their employment to facilitate share buy backs.

    It is quite sad what a banana republic we have become.

  2. "I will gladly pay you Tuesday for a hamburger today" says Wimpy ...Popeye's friend from childhood cartoons in the 1960's!

    Unfortunately, you are absolutely correct in everything you say.