David Rosenberg is chief economist with Gluskin Sheff + Associates Inc. and author of economic newsletter Breakfast with Dave.
The U.S. consumer has not stopped spending – that much is for sure. Even so, the pattern has shifted over the past year towards a very "cozy and homey" sort of backdrop. It's the type of behaviour that would have made June and Ward Cleaver very proud. Let's assess the situation.
In the year to June, Americans have reduced their volume spending on new autos by 11.8 per cent. That is epic. They also have cut their gasoline usage by 1.7 per cent. So they are driving less, which for a country of active motorists, says a whole lot. But they sure are spending more on fixing up their clunkers – real outlays on maintenance and repair have risen almost 3 per cent in the past 12 months. Fonzie would raise his thumbs over this one (for those of us old enough to remember Happy Days). More time repairing, less time buying.
Restaurant spending has edged down 0.2 per cent in the past year. This rarely happens outside of recessions and the experts say a downturn is not only not here, but not even imminent. But that doesn't mean people aren't living frugally. This is a classic case of eating out being out, while eating in is in, because real spending from grocery chains is up 1.7 per cent.
And no, it's not just about the preference for family time around the dinner table. Even when it comes to alcohol, the bars have seen modestly lower volume over the 12 months to June (down 0.3 per cent), while purchases of spirits to bring home has gained 2.5 per cent. (Hey, this way, you don't have to tip!)
Here is another sign of the cocooning consumer: movie attendance is down more than 3 per cent. Not to take anything away from an evening at the bijou, but how does that compare with snuggling on the couch in your own family room with your own big screen? Sales of televisions have soared 16 per cent as movie theatres are seeing softer sales. Video equipment is up 8.3 per cent.
Housing activity – outside of the boom in the multifamily segment, which is now in the rear-view mirror – has been uncharacteristically sluggish during this expansion. There has been very weak sales turnover. But what people are doing, as with their cars, is upgrading what they have instead of opting for something brand spanking new. So home sales may be weak, but appliance sales are up 5 per cent in the past year. Furniture is up more than 4 per cent. And home-improvement activity has expanded 6 per cent. Sales of dishes and flatware have soared 7.5 per cent in the past year. Who needs to upgrade to a new home when you can just make the existing place look and feel that much better. Whoever said "out with the old"?
Other experiences one enjoys in the comforts of the home have been doing very well, too. Real spending on games and toys has soared 15 per cent in the past year. Sporting equipment has jumped more than 4 per cent because in this frugal environment, a fun day with the kids is a bat and ball in the backyard. Reading the newspaper in the living room, too – sales are up 6 per cent. Nice and relaxed on the new sofa. Book sales in real terms are also up almost 6 per cent year-over-year – so much for just reading online. Spending on pets is 3.3 per cent higher now than a year ago, which is more than double the growth rate of the population! But let's face it – what is more domestic than having a puppy or kitten around the house?
So households are trimming their eating-out budget, they're shaving their night-out-at-the-movies budget, being much more judicious on spending allocated towards automotive consumption. What they are doing in terms of family time is having fun at the lowest possible cost, beyond just tossing a baseball in the backyard: the hottest spending item in the consumer expenditure accounts is amusement parks and camping – activity here has soared 10 per cent over the past twelve months.
Even small things like this – clothing sales have increased 1.6 per cent in the past year and yet spending on laundry and dry cleaning has dipped 0.2 per cent – says it all. We always need clothes on our back; that is an essential. But at the same time, cleaning our own laundry rather than sending it out arguably is the most vivid sign of how frivolity has morphed into frugality.
If the U.S. Federal Reserve needs to know why inflation has remained so low for so long, maybe it has to start to incorporate some fresh variables in their models – ones that can capture this secular shift in attitudes that has as much to do with demographics as it has to do with the aftershocks that followed the severe rupture to the credit and asset markets eight years ago.