Where did we splurge?
Date posted: September 20, 2010
Pushed by a good stock market and soaring housing prices, American households went on a buying binge before the recession. During those earlier buying years, what kinds of products were consumers snapping up? N.C. Cooperative Extension economist Mike Walden responds.
“Before I answer that, … let me give our listeners a little bit of background. We really did have a very unusual economy in terms of income from assets — things that people owned. From really 1980 to 2007 — over that time period — the stock market did very well. And in the latter part of that period, 1997 to 2007, the housing market did very well. And what that did is build up wealth that consumers had in those investment markets, and they were able to borrow against that wealth to spend money.
“And so your question is, well, where did people spend that money? And the research that has been done shows that people spent those funds that they were borrowing, for example, against their home equity very broadly, but they really focused it on two areas: new vehicles and home appliances. Those two areas really benefited from the spending binge, if you will, or splurge that consumers engaged in.
“And what that means is, if we are now going in the opposite way, where consumers are pulling back and spending less and saving more and being more frugal, these two areas — new vehicles and appliances — will likely suffer the most.”
Category: Economic Perspective