Sugar Coating the Truth

Today I explained that increased Holiday spending does little for longterm economic growth as durable good production is down.

How the truth gets sugar coated

If a spoonful of sugar helps medicine to go down smoothly because it masks the bad taste, we should be alert to the fact that “expert” analysts and economists tend to sprinkle a lot of sugar on even the grimmest of forecasts to reassure that no matter how bad things may get, Americans can be counted on opening their wallets and spend.

The Holiday Season was a clear example. A slight shimmer of hope was all that was needed to have the Consumer Confidence Index in November take a leap forward, never mind that today’s numbers have put us back into the prior misery.

Over the Holidays I’ve heard the sentiment that things are looking up so many times, that I very nearly fell for the trap of believing. Indeed, as we have all listened to more and more forecasts calling for further decline, it always came as a relief when otherwise gloomy assessments ended with the cheery assurance that things really were looking up after all, because Americans work hard and the last thing they’re going to do is sacrifice their cherished Holidays.

The logic behind this notion seemed sound enough, albeit a little sophomoronic. Holiday Gift Giving as well as Vacations, the thinking goes, are viewed by the U.S. consumer as a veritable birthright. Who, after all, would deprive self or family of the sanctity of the present under the Christmas Tree and a week or two of relief from the unrelenting toil and boredom of day-to-day life?

No, Holidays and vacations are in a protected class. Not to be messed with. Period.

Honestly I badly wanted this not to be true, but in looking at nearly 30 years of data, I found that there was, in fact, almost no correlation between consumer confidence and holiday shopping or vacation plans. In other words, consumers tend to take a vacation or will shop gifts for the Holidays no matter what. But I sensed that the numbers were skewed and the research in the NEW economy has not addressed the particular changes.

It turns out that yes, there are still a lot of people embracing the years of credit availability as if they have lived in an isolated cell in the past couple of years. They keep using their credit cards to sink deeper in debt as they are now finding banks like Chase and HSBC charging 30% interest. But than there is also a growing number of people that have found their way back to SAVING before buying. An old and proven tradition. In other words the number-crunchers are still using outdated methods and are failing to look at a crucial piece of data. They have not correlated consumer confidence with consumer behavior, especially in recessionary periods.

Savings were up over 2010, but were substantially depleted during the Holiday Season. Vacationing is also more and more becoming a savings matter, all inclusive packages that can be saved for. Soon-to-be-wedded couples ask for contributions towards their honeymoon instead of useless gifts in the household.

Instead of mindless spending, a growing number of people are combining resources to be able to afford the extra ordinary; they just realize that such events and gifts are more special and less frequent.

This Holiday season was good because people used their savings they built up over the last year, on products that were priced so advantageously cheap, that it was worth applying savings against it. The double whammy comes now after the Holidays, when they will start putting more money aside, amidst oil prices that are now making gasoline hit $3 and more at the pump.

Saving for an expensive gift or a special vacation…what a concept!

1 Comment


    Really interesting post, wasn’t expected it when I read the title. Really good.

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