We Will Not Shop Our Way to Prosperity

These two quotes pretty much sum up my feelings about holiday shopping in general. So there is not much more that needs to be said on that subject. But for better or for worse, the U.S. economy is best described in terms that are consumption-based. For the sake of our future prosperity, we need to become more of a production-based economy, but that is a story for another blog piece. Today I will focus on the trends in consumer spending, and what that means for the economic outlook for 2014.

The consumer spending data from the Bureau of Economic Analysis is divided into two major categories: goods and services. Americans spend roughly two-third of their income on services (housing, health care, transportation, etc.). They spend the other one-third of their incomes on goods (nondurable goods such as food and clothing, and durable goods such as motor vehicles). Demand for molded products, and by extension demand for new molds, will be most affected by consumer spending on goods.

So far this year, real consumer spending for goods is up about 3.5% when compared with last year. This follows an expansion of 3.3% in 2012. This rate of growth is very close to the long-term average for this category, and it compares favorably to the pace of overall economic growth during this time which was just about 2% per year in each of the past two years. By far, the fastest growth has been in the data measuring spending on motor vehicles and parts—up 7.3% in 2012 and up 6.2% this year.

Our forecast for 2014 calls for a moderate acceleration to 4% in consumer spending on goods. This forecast is based on expectations for improvement in the employment data and a continuation of the recovery in the residential real estate and construction sectors. The rising employment data will generate moderate gains in household incomes, and the recovery in the real estate sector will raise household wealth levels. Both of these are important drivers of growth in consumer spending. The gains will not be large, but it will be an improvement.

This forecast is not based on what the major retailers report about holiday shopping patterns. I do not consider holiday shopping reports to be reliable indicators of future economic activity. The large retailers would have you believe that shopping is what Americans do best. I prefer to think that making things is what we do best. So please stop telling me how much Americans consumed in the fourth quarter, and start telling me how much stuff Americans produced when they were not taking a few days off to be with their families.