Balance Between Consumption Now and Consumption Deferred – what would that be like?

“The decline of the savings rate is particularly troubling because it is consistent through busts and booms.”

[Saving money is key, as indicated above, but META BANK seeks out the most, economically disadvantaged, tells them they will be able to find a way out of “having a bad credit history” by using the META BANK prepaid bank card, often, and by having their paycheck directly deposited to an attached checking account. This gives far too much power and control to META BANK, and META BANK has a long history of very poor customer service.  .   .    . Consumers must join together to help each other to understand what is going on]

“In fact, the most telling indicator appears to be the sheer number of indicators themselves. “

“There are so many indicators to choose from that you could glean just about anything regarding our economic future.”

“Americans now have so many seductive things they can buy that there are ample consumer options no matter what we feel. “

[I believe that we are on overload regarding which way to turn and what advice to take.  There is just too much information at times, and some of it is designed to distract us from the real facts as they are.It also means that those banks that have studied publicity, hired professional publicists and set about to “hook us in” to their project for financial gain  .    .   . Large Corporations also align with these banks and together they seem to be running the world.  .    .   .  As consumers we must join together to say, “Stop” or “No” to these practices  ….. On the other hand, we may have to make some changes too simply because we have been mislead to believe that buying and buying is something we are entitled to and that it is the right thing to do .  .  . This is part of the publicity to market to us things for which we have no real genuine need… It is hard to tell the world when you/we/ I have been scammed because we bought into the scam….. I bought into META BANK’s Scam too and META BANK pushed it to the far limits…. All that I can do is to warn others based on the further research that I did….. META BANK pushes blame off onto the consumer; META BANK lies to the consumer… Why Lie??? …. This is a smoke screen in an effort to get the complaining customer to back away…. After all, once META BANK has full control of the customer’s money, then the customer’s genuine needs become superfluous and bothersome to META BANK’s desire to hold on to the customer’s money from which META BANK gets an interest free loan….. META BANK is fraudulent in their  customer service practices. .   . . . The only advice that I can give is to save money, don’t use META BANK, don’t use  NETWORK  BRANDED PREPAID BANK CARDS in an effort to spare others the pain that I experienced.]

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IT’S THE ECONOMY

What Nail-Polish Sales Tell Us About the Economy

By ADAM DAVIDSON

Published: December 14, 2011

Economics is all about consumption.

People either spend money now or they use financial instruments — like bonds, stocks and savings accounts — so they can spend more later.

A healthy economy is largely a result of a reasonable balance between consumption today and consumption deferred, and it’s pretty clear that balance has been ridiculously out of whack for a while.

Our current problem is that much of the world has shifted rapidly from consuming way more than it could afford to consuming far less.

[Is this also about climate change and the rapid degradation of  the environment?]

The subsequent whiplash has left many people (and, in some cases, entire countries) broke, unemployed and deeply pessimistic about the future.

And while we can measure stock prices and bond rates, the key factor that determines consumption and, therefore, the health of the economy, lies in our psychology. 

Economists believe that what we feel about the state of the economy is best revealed not through what we say in surveys but rather through what we buy and exactly how much of it.

There’s a lot of data available, though none come with a prepackaged psychological narrative attached. So analysts do the best they can, combing through our national shopping lists hoping to uncover clues.

Sometimes they find remarkably helpful information in very unlikely places.

They also uncover plenty of cute facts that mean little. 

Consider this: 2011 was a banner year for the sale of insanely expensive fine wines at auction. Someone at a Christie’s auction in Hong Kong, for example, bought 12 bottles of 1985 Romanee-Conti for a bit more than $150,000, or about $600 per sip. And the grand lesson this teaches us about the overall economy is . . . absolutely nothing. 

There’s some meaning in this anecdote about how the superrich — especially the newly superrich in China — are doing far better than the rest of us.

But that can’t help us figure out if we’re headed for a double dip, a stagnant decade or a sudden rebound.

To figure out what our buying behavior says about the U.S. economy’s future, we have to understand what’s going on in the middle class, the 50-percenters. 

And to figure this out, my colleagues and I at NPR’s “Planet Money” went searching for as many shopping-based indicators as we could find, hoping some would unlock a hidden story about what Americans are feeling and where the country is headed.

The results were mixed, but we did uncover some ominous signs. 

Lipstick sales used to go up when the economy went down, perhaps because women were searching for a cheap pick-me-up or an edge in a job interview. 

For reasons nobody quite understands, the lipstick indicator doesn’t hold up anymore, though nail-polish sales now seem to reflect the economy very clearly (albeit inversely). 

A rise in nail-polish sales indicates that we’re searching for bargain luxuries as the economy craters — and sales of nail polish are way up right now.

Women’s underwear sales are down, which historically suggests intense frugality and more rough times ahead.

But we were encouraged by the number of optimistic indicators we uncovered.

There is good news in cemetery-plot sales. They seem to have peaked a couple years ago when desperate families were unloading unused holes in the ground (though cremation numbers are rising).

Sales of cardboard boxes, because everything from electronics to clothing is packaged in them, should also be a strong indicator of economic rejuvenation. (Current production — enough to paper over the entire state of Maryland — portends recovery.)

Sales of men’s underwear, one of Alan Greenspan’s favorite metrics for predicting growth, are also up. Sales of cheap spirits, which soared during the worst of the recession (people need an affordable way to self-medicate), have now stabilized, meaning, at the very least, people can now afford better liquor.

Of all the indicators we looked at, one of the most consistently accurate was Champagne sales.

The amount of French Champagne that Americans consume has predicted — with nearly 90 percent accuracy — the average American income one year later. Apparently, when we pop a Champagne cork, we know that good times are ahead (see chart). Champagne sales hurtled upward twice in recent history — at the peak of the Internet bubble in 1999 and during the heyday of the housing bubble in 2007. These were both followed by slowdowns as fewer people found reason to celebrate.

There are so many indicators to choose from that you could glean just about anything regarding our economic future. 

In fact, the most telling indicator appears to be the sheer number of indicators themselves. 

Americans now have so many seductive things they can buy that there are ample consumer options no matter what we feel. 

Partly as a result, savings — known in economics as deferred consumption — have fallen steadily for more than 30 years, from a high of nearly 12 percent of income. It kissed zero before a tiny uptick in the past couple years.

The decline of the savings rate is particularly troubling because it is consistent through busts and booms.  [Please note this fact. This needs to be the focus of the solution.]

During the fast growth of the late 1990s and mid-2000s, and the dark times that followed, people have been choosing to spend more and save less than ever before. [ This is of concern… Pay attention here to this trend.]

Paradoxically, this happened just as pensions have been disappearing and life spans have been increasing. It suggests that Americans are so caught up in every short-term enthusiasm or agony that they haven’t thought enough about long-term fiscal health.

When the dust clears from the current crisis in a year or 2 or 10, it will probably become obvious that the recent decades were a giddy consumption mirage fueled, in part, by free-flowing foreign debt.

The world won’t lend the United States money for nothing forever (though, downgrade aside, nobody has told the world that yet), and the country can’t keep buying a lot more from everyone else than it is able to sell them.

America will, most likely, need to find a more normal, sustainable level of consumption, and that’s exactly the problem. We don’t know what normal consumption looks like. 

Over much of the last few decades, we gave in to every shopping whim, with little thought to the future, except for those times we were so dispirited, we wouldn’t spend at all.

What does a reasonable balance between consumption now and consumption deferred actually look like? That’s what we need to figure out.

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Adam Davidson is the co-founder of NPR’s Planet Money, a podcast, blog, and radio series heard on “Morning Edition,” “All Things Considered” and “This American Life.”

A version of this article appeared in print on December 18, 2011, on page MM12 of the Sunday Magazine with the headline: Indicate This.

http://www.nytimes.com/2011/12/18/magazine/adam-davidson-economic-indicators.html?ref=business

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Reader’s Comments:

“Sales of nail polish have gone up because women have been foregoing manicures and doing their own nails. Nail salons in NY are suffering from a loss of income and are price cutting tremendously to try to keep in business.

Lipstick was once an affordable luxury; now it is at least $12.00 at the local CVS and $35.00 at department stores. So the dollar amount of lipstick purchases have probably declined due to women “trading down”.

When the economy is on the rise, businesses will give champagne as a Christmas gift to their customers; when business is bad, they trade down to wine. 

Same thing with events and business parties. It would be interesting to have track what percentage of champagne purchases are made by businesses vis a vis consumers.

It would be so helpful if the pundits who come up with these purported indexes and theories would do a little fact-checking and investigation.”

[Most scholarly investigations have at the end a list of resources. Newspaper articles simply indicate a source or two within it. Meaning that this is a report of a study and what it found out…..   It is all about fact checking and investigating]

———-

“The decline of the savings rate “suggests that Americans are so caught up in every short-term enthusiasm or agony that they haven’t thought enough about long-term fiscal health.”

Maybe. Or maybe you’re oversimplifying the point and broadly dismissing Americans as stuff-driven maniacs. [Feelings can be hurt… On the other hand, if we removed ourselves from this on a personal level it may allow us to look at the global situation we live in. This isn’t the time to go about with our eyes closed. I didn’t perceive that this article said that “Americans are stuff-driven maniacs.” I found it to be more sympathetic to our current economic conditions that we, as consumers, did not create, but which we had foisted upon us.    On the other hand, we do need to look at the factors that put us all into this economic downturn with open hearts and open minds so that we can see the situation in its entirety.  You may have some excellent ideas that need to be explored further. I would encourage you to look for solutions. None of us can afford to be pushing blame around in anyway. I believe that the article simply reported a study of all spending habits and found nothing, but the fact that we can’t for some reason save money is of great concern.]

Please consider for at least one sentence that we might have skewed the system, not that people are shortsighted, selfish jerks. Perhaps Elizabeth Warren is right that the cost of fixed expenses has increased so much (thanks in part, no doubt, to the advent of the 30-year mortgage) that it isn’t a “choice” to spend more and save less. Have you heard about historic housing prices compared to inflation?”

[that it isn’t a “choice” to spend more and save less. Have you heard about historic housing prices compared to inflation?”   . . . The article above supports this statement. .  .   . As consumers, we are caught between a rock and a hard place  …  The current design of the economy has been working against the welfare of humanity. So we must speak out, not to people who write articles, but against the ways we have actually been mistreated by the current system…. We can no longer afford to go around in circles without finding solutions.  …  We must have goals and be looking for solutions.]

————

“The current economic situation underpins the complex worldwide inter-dependencies of markets; however economists do not recognize that at the origin of the crises is a policy pursued by US companies in the last decades of the 20th century.”  [ This is true. What can we as consumers do to change this course?]

“The policy simply stated: we (US companies) do not want to be the factory any more, we want to become the marketing/sales arm. ‘Factory’ here stands for the production of tangible and intangible goods and services; be they TV sets, apparels, etc. or transaction processing, customer support, etc.” 

“The major flaw with that policy is that well-paying US jobs, the backbone of the US middle class, with hourly wages in the $20 to $30 range, have been replaced in the 21st century with sales jobs paying hourly wages in the range of $8 to $15.” 

“Never mind that former ‘sales clerks’ are now ‘sales associates’ the stupid title does not make up for working for an hourly wage that does not support a family.”  [ It is true that titles without an increase in pay in accordance with inflation rates so that they are a genuine pay raise mean absolutely nothing.]

“Ironically or, tragically, the rise of China in the 21th century proves unmistakably that the big money is in the ‘factory’ side of the equation and not in the ‘marketing / sales’ side.”  [Balance is needed. The economic situation may be far more complex than even this explanation which is as good as any. We can only change what happens in this country; let’s focus on what we do in the USA as we seek solutions.]

“Especially when products sell by themselves, such as iPods, Ixxxx, etc”. 

“In those instances you do not even need to train your ‘sales associates’ and so one can further reduce their hourly wages to close to a ridiculously low US minimum wage.” 

“What is the solution? Bring the factory back to the USA and optimize production flows to manage costs.” [Bring the factory back to the USA…okay.. we will need raw supplies and people with money who can buy from us, and factory workers.  What will be needed that we will be able to market on the global market? What should we make in our factories?]

————

“All I know is, while the Krugmen keep saying inflation is under control, I am bleeding money whenever I go to the filling station or the feedstore. So someone, somewhere (trading in petroleum or grain futures) is making money.” [ Yes .   .   .  someone someplace is making money…large corporations and bank CEO’s, for example .  .   .  Some people invest on a daily basis that drives prices up or down as they invest or sell…. These are paper investments, but they affect all of us.]

I am not saving because there is nothing left over to save. [ This is the underlying issue, of course, and when META BANK  makes promises that play on our emotional needs to be able to pull ourselves out of this kind of situation using their services, but the services are really only designed to help META BANK use us to make lots of quick money, then this is a real scam.]              

I’m not buying because everything I have is perfectly good, and I have too many pairs of underwear, T-shirts, etc. already. And manicures are pretty much wasted on farm hands.”  [ The original article indicates that some buying habits really mean nothing and that the significant economic indicator at this time is the lack of balance between savings and spending. We have spent, but we aren’t or can’t save, and this is a very big problem that needs to be resolved.   “For reasons nobody quite understands, the lipstick indicator doesn’t hold up anymore, though nail-polish sales now seem to reflect the economy very clearly (albeit inversely). “]

“Rather than under-consuming, do you suppose the current patterns reflect a realization that consumption is not the primary end of existence?” [ This should be the lesson from this time period.]

“Because with all that non-spending going on, I am cooking, visiting, reading, walking, getting a lot of clearing and mending done, and, oddly enough, happy. “ [ This is what needs to happen, a refocusing on humans our neighbors.]

“So maybe the people who think prosperity is based on consumption (i.e. greed at the supply side and gullibility at the demand end) are going to have to re-think their whole thing.”

————

“Not only has our savings declined, but our incomes have stagnated, too. And now, unfortunately, residential real estate will not be worth it’s purchase value for how long, who knows? Maybe for another generation or two, a few more bubbles and crises away.” [ That basically sums up the economic situation as it really is at this time.]

———–

“A rise in nail-polish sales indicates that we’re searching for bargain luxuries as the economy craters — and sales of nail polish are way up right now.”

“Actually, I think it is a move to economize on beauty rituals. Many women, myself included, gave up a regular pedicure/manicure (about $25-$30 a trip) when we hit hard economic times. A nice bottle of nail polish costs only $6-$7 dollars and lasts as long as a year. I now do my toes while watching tv rather than going to the nail salon. Can you check that sector to see whether it is down?”   [So perhaps this can be used as an indicator, albeit one of many of our current economic situation.]

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