Courtesy of Fu Meng / Art Labor Gallery
By Annie Lowrey
DECEMBER 1, 2023, 7:41 AM ET
You would think, with prices as high as they are, that Americans would have tempered their enthusiasm for shopping of late; that they would have pulled back spending on luxury items; that they would have sought out budget and basic options, bought smaller packages, fewer things.
This is not what has happened. Consumer spending rose 0.2 percent, after accounting for higher prices, in October, the most recent month for which the government has data. Online shopping jumped 7.8 percent over the Thanksgiving long weekend, more than analysts had anticipated. The sales of new cars, dishwashers, cruise vacations, jewelry—all things people tend to give up when they are watching their budget—remain strong. Consultants keep anticipating a recession precipitated by the “death of the consumer.” Thus far, the consumer is staying alive.
People hate inflation, just not enough to spend less: This is one of the central tensions of today’s economy, in which things are going great yet everyone is miserable. And in some ways, Americans have nobody to blame but themselves.
Three years ago, the pandemic gnarled supply chains around the world, leading to shortages of many consumer goods. At the same time, the American government transferred roughly $1.8 trillion to households in the form of generous unemployment-insurance benefits, an amped-up child tax credit, stimulus checks, and delayed or forgiven student-loan payments. Less supply, more demand—it was a recipe for higher costs.
Costs really rose. A dozen eggs went for $1.33 the summer after the pandemic hit; the price topped out at $4.83 last winter. Gas prices nearly tripled. Used cars started trading for as much as or even more than new cars. The cost of leasing an apartment surged. The cost of buying a house went up even more.
More recently, prices have been driven up, if more slowly, by the strong labor market. The unemployment rate is as low as it ever gets and has been for some time, with labor shortages in a number of sectors: air-traffic control, education, retail, trucking, police and public safety, nursing, plumbing, and electric. The tight labor market has forced employers to pay workers more, boosting wages, particularly at the lower end of the income spectrum. Real hourly earnings for workers in the tenth percentile of wage distribution went up more than 8 percent in the past three and a half years, the economists David Autor, Arindrajit Dube, and Annie McGrew found. And average wages have grown faster than average prices.
Sticker shock is real. And in surveys, people say that they are trading down because of cost pressures. But in fact they are spending more than they ever have, even after accounting for higher prices. They’re spending not just on the necessities, but on fun stuff—amusement parks, UberEats.
People just have a lot of money on hand. More broadly, they seem to be less likely to change their purchasing habits in response to price shifts—even when budgets are leaner. A raft of recent studies have found that American consumers have become less price-sensitive in recent decades. Households are using fewer coupons. People are spending less time mulling over what to buy when they’re shopping.
Why? Maybe because, although prices of many consumer goods are higher than they were a few years back, they’re still much, much more affordable than they were a few decades ago, thanks to globalized trade and manufacturing advances. (The price of a television has dropped more than 90 percent since the late 1990s.) Your grandparents might have gone to three different grocery stores to get the best deals. Would it really be worth it for you to do the same now? Maybe not. Especially not if you have a job. It used to be much more common for one partner in a marriage to make the money and the other to raise the kids and spend the cash. Today, working-age women are only a little less likely than men to be employed, giving them less time and energy to pinch pennies.
Another theory: Consumers might have become more brand-loyal, less willing to trade Coke for Squirt or Nike for Sketchers. Perhaps that is because companies have gotten better at tailoring products to people’s tastes. Perhaps it is just inertia: People get more stuck in their ways as they get older, as the average American has. You’ll pay more for Starbucks coffee because you always get Starbucks coffee.
It should be good news that Americans are better off than they were pre-pandemic. It should be good news that people can afford more, even if prices are high. But then why is everyone so mad about prices? Higher prices are just vexing, making people do mental math every time they shop. Economists point to other psychological factors too: People seem to think of their swelling bank accounts as a result of their own hard work, but consider cost increases someone else’s screw up. Nor do average consumers see inflation as something that might benefit them by, say, eating away at the value of their mortgage payments.
People want to blame Joe Biden for their bills. They want to accuse stores of gouging them (though the evidence for “greedflation” is scant). The strange truth is that most people really are in a more comfortable position, even if they’re not happy about it. It’s not like a weak economy, stagnant wages, crummy consumer spending, and cheaper stuff would be better, after all.
Source (Archive)
