Wednesday, August 4, 2010

What is Your New Normal or New Abnormal?

Interesting article today from MSNBC on the "new abnormal" and "schizophrenic" American consumer.

  • Ralph walked away from his $329,000 condo and let it go to foreclosure and then went to DisneyLand and bought himself an iPad.

I guess Ralph is not worried about a judgment, not sure what the California law is, but here in Florida the statute of limitations on a deficiency judgment is twenty years. But, I guess if you are spending your extra cash rather than saving it the bank won't be able to collect on that judgment.

The article describes the new abnormal as follows:

The current circumstances might be better described as the new abnormal, in which no one knows anything. In June the Conference Board Consumer Confidence Index fell 9 points on the heels of an 11 percent drop in the S&P 500 the month before. New housing starts were as bad as they had been in eight months. Meanwhile, the unemployment rate still hovers near double digits. That's 14.6 million Americans out of work. Federal Reserve Chairman Ben Bernanke only added to the anxiety with a July 21 declaration that the economic outlook is "unusually uncertain."

So who are all those people at the mall? It's easy to forget that a 9.5 percent unemployment rate means that roughly 9 out of 10 Americans in the workforce are still employed. "Some consumers are probably liquidity-constrained," says Kenneth Rogoff, Harvard University professor and former chief economist at the International Monetary Fund. These are "the ones who are probably not the ones buying iPads. But 90 percent of Americans do have a job, and maybe 70 percent are confident about them. And maybe half of those have liquidity."


Perhaps it is good that those who "have liquidity" are spending it rather than saving for a rainy day. Spending helps to drive our economy and provide jobs. And I have to agree that when I'm out and about at shopping centers and restaurants, there seem to be quite a few people out shopping and dining these days. My husband and I often note "what recession" when we observe the very full parking garage at our local shopping centers (in the off-season too).

I thought it was particularly interesting that 51% of consumers had fallen behind on their annual savings plan due to impulse spending or spending beyond their means.

How about you, are you spending more these days? If yes, what types of purchases are driving your increased spending? Are you feeling more comfortable with the economy?

2 comments:

Anonymous said...

California is a no recourse state like Arizona. Meaning that on a home foreclosure the mortgage holder cannot pursue the defalter for the difference.

Anonymous said...

kids are impacting our savings plan, they graduated this past June but haven't been able to land jobs yet. so even though tuition, student housing, etc is over our plans to increase savings (and pay extra/off mortgage) is behind plan. They are now living and eating at home, need help with car insurance, etc. Hopefully they will be on their feet moving forward in the next few months and we can take advantage of freed up income. Core savings continues though, I have done what ever it takes over the years to make the max allowed annual 401k contribution.