With all the press about a slowing real estate market, you might think the average consumer would stop spending so much.
You’d think wrong.
Apparently, the average US consumer thinks things are going pretty well, thank you very much.
This year, despite what appears to be the most significant housing-market slump in more than a decade, the nation’s consumers have increased their purchases of goods and services at an inflation-adjusted annual rate of more than 3% — just as they have for the past two years. “They’re not backing off,” says Janet Hoffman, managing partner of consulting firm Accenture Ltd.’s North American retail practice.
Why would consumers want to keep spending, even as they see their “net worth” drop?
There are several possible explanations. First, while housing is slumping — the median sales price of an existing home is down 1.7% from a year ago, according to the National Association of Realtors — other parts of the economy aren’t. Unemployment remains low at 4.7%, employers are adding workers and incomes are rising. Corporate profits are up, businesses are increasing their capital spending, and exports have picked up this year. Moreover, the sharp drop in gasoline prices that began in August has given consumers a quick boost in purchasing power.
It remains to be seen whether consumer spending will stay up, if housing prices start falling.
Source: As Housing Prices Cool, Americans Keep Spending – By Christopher Conkey, The Wall Street Journal Online