...So Why Aren’t People Spending Money?
According to new data released this week, the economy improved a lot in 2014 (after the first quarter, anyway), 2015 is looking good, and employment continued to improve in January. But one key economic indicator is still lagging behind: shopping.
The U.S. Census Bureau recently reported that retail sales declined by 0.8% in January, following a 0.9% decline in December. This trend has left many economists and Wall Street analysts perplexed.
Now, “retail sales” include sales at the gas pump, so that drop is a direct result of the lower price of gasoline. (Americans spent 9.3% less on gas in the month of January.) And while everyone likes saving money on gas, economists had hoped that spending in other categories would partly offset the decline.
A few discretionary spending categories are showing signs of growth in the Census data. Building materials, garden supplies, electronics, miscellaneous store retailers, and restaurants all had gains.
The U.S. Energy Information Administration has projected that
lower gas prices will save the average U.S. household $550 in 2015. So where would he best place be for us to put that savings? Most analysts would like to see consumers spend the gas savings. Since consumer expenditures make up 68% of U.S. economic activity, an increase in spending would keep the growth engine moving forward.
Three main theories are emerging as to why this isn’t happening. First is psychological—short-term windfalls don’t immediately change the behavior of consumers until they believe the gains are long-term. The second is consumers may be spending more than we realize, because areas like health care aren’t being measured by the expenditure data. The third theory is the one that supports even greater economic gains down the road: Consumers are paying down debts or saving the gains. It won’t be good for the economy if the savings don’t find their way back into the economy. But the reason I view this as positive is that many households may indeed be paying off debts and saving with a purpose in mind: buying a home.
If you have a greater objective, such as buying a home, it’s entirely rational to save more and spend less in the short term. A 2013 paper from the Joint Center for Housing Studies at Harvard University noted this behavior as one of the key ways homeownership builds wealth through “forced savings.”
More Americans may indeed be saving for a down payment and dreaming of a new home, and Web traffic shows interest in real estate growing rapidly. According to January data from the comScore Media Metrix, unique visitors to real estate websites increased 12% over December and 24% compared to last January.
Perhaps we should add a variation on the third theory: U.S. consumers spent less in January because they were too busy dreaming and looking at real estate online.
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Lang Premier Properties are Birmingham Realtors specializing in Oakland County Real Estate. Stephanie is an agent with Lang Premier Properties. See what past clients have to say about Stephanie Lang. Lang Premier Properties looks out for your best interests when you purchase a new custom luxury home. We always recommend working with an experienced luxury real estate agent when buying a new luxury estate.