Clap yours hands and say….oh, wait
by Liz Hester
The federal government said Tuesday that consumer spending rose 3.3 percent more in 2011 than in 2010.
On the face, that’s just fantastic. But, dig a little deeper and the picture isn’t as pretty.
Consumers spent more on necessities, such as food, transportation and health care, but held back on splurging on other purchases, such as entertainment and apparel, which had much smaller increases. That’s in part because the economy is still weak and the job market still rocky, experts said.
“People are cautious of spending because they don’t know what’s coming up,” said Diana Furchtgott-Roth, senior fellow at the Manhattan Institute.
Spending on transportation rose 8% to an average $8,293 in 2011, with outlays on gas climbing 24.5%, according to the annual consumer expenditures survey from the Bureau of Labor Statistics. The average nationwide price for a gallon of regular gas rose 26.4%.
The increase in gas prices is hitting families hard, particularly those at the lower end of the income scale, Furchtgott-Roth said. Those who make the least spend 12.2% of their income on gas, versus 2.7% of the highest earners.
There was another bright spot. Home prices climbed 5.9%, the biggest year-to-date gains since 2005, according to the Wall Street Journal. From yesterday’s story:
The rising prices in Tuesday’s Standard & Poor’s/Case-Shiller 20-city index could play a pivotal role in changing consumer sentiment toward housing and drawing in buyers from the sidelines. Another lure: Mortgage rates are falling to record lows after the Federal Reserve resumed buying mortgage-backed securities two weeks ago, helping to offset rising prices.
“Housing is no longer a negative. It is turning positive and we see the data reflecting that,” said Ivy Zelman, chief executive at research firm Zelman & Associates.
Home prices typically are strongest in the summer, the busiest season for home sales, before declining later in the year. But the 5.9% rise far surpasses the 0.4% gain seen through the same period last year and the 2% gain in 2010.
The stock market is up too. So, are consumers going to spend more now that their homes aren’t underwater? The short answer is, probably not. The reason being, people are spending more on things they need, not on what they actually want.
I would love a $1.2 million apartment in Brooklyn. I’m more likely to own – well, nothing in Brooklyn – but like most people I’m a bit more measured in my spending than I was a few years ago.
As the Journal said:
However, headwinds could keep a lid on rapid price growth. Millions of homeowners owe more than their homes are worth and can’t sell their properties. That has frozen the important “trade-up” market—in which buyers move to bigger properties—in many regions hit hardest by the housing bust. Prices nationally are down by 30% from the peak seen during the housing bubble, and hovering around levels last seen in mid-2003.
So, all the supposedly good economic data is really pointing to the fact that people are stuck. They’re stuck in their homes, stuck in their tax bracket and stuck with paying more for life’s necessities. I guess it’s better than declining net worth, but hard to justify throwing caution to the wind and spending with abandon.
It’s important to also keep in mind that all these numbers are also constantly shifting. While the media cover them as if they’re the last bit of news ever, each month the data shifts and are only good for capturing a snapshot. It’s hard for economists to get a clear picture, much less consumers.
I truly want to believe that some of this is good news and the economy is getting better. But with my home state of North Carolina posting an unemployment rate of 9.7%, I still think there’s a long way to go before most feel economically secure.