Why are consumers spending again?

Joel Naroff

TEXT OF INTERVIEW

Tess Vigeland: I was in an Apple store last weekend. The place was packed. And every customer asking for a new 3G iPad got the same answer: Sold out. That was the refrain across the country, apparently. 500-800 bucks? No problem -- here's my wallet. What recession, right?

Well, purchases like that are part of why a new number out this week shows we spent more than we made in March. Economist Joel Naroff is here to explain. Welcome to the show.

Joel Naroff: It's a pleasure being with you, Tess.

Vigeland: So are you joining all these other folks and doing a little more spending than normal lately?

Naroff: Eh, I'm spending a little bit more. Actually getting a couple of things on my house that I've put off for a couple of years. But I'm not out there spending like crazy, that's for certain.

Vigeland: Oh, I'm glad to hear that. But here we are, less than two years out from the heart of the economic crisis. Supposedly, we were all going to learn a big lesson, cut back on our overspending. What's your sense of the situation right now?

Naroff: Well, I think what's happening is people have learned a little bit of a lesson. They've discovered over the last two years or so that if they don't visit the malls, they can do without it. If they don't go out to eat every night, that's not the worst thing possible. And they've learned to cut back to some extent. But I think that's going to change a little bit. We are a consuming nation; we like to shop. I think the difference going forward is, instead of shopping till we drop, we'll probably shop till we're tired.

Vigeland: Until the feet are ready to go, right?

Naroff: That's right. But that's really a big difference, because we were a little crazy in the 90s and especially the past decade, where we had an awful lot of extra income from either dot-coms or you know, raiding our equity on our homes, and we went out and spent like crazy. We don't have that anymore. That by itself is going to keep spending down -- even if we want to go out, we just don't have the cash or the income.

Vigeland: Well, does this also give lie to the idea that this is a consumer-less recovery? I mean, it's certainly a job-less recovery, but aren't consumers adding to the sense that everything's getting better?

Naroff: Well, consumers are spending a little bit more, but I think we have to keep it in perspective. If we go back a year ago, we were all assuming what I nicknamed the "turtle position," where we just basically pulled in our heads and our legs and said, "I'm not doing anything. I'm not going anywhere. I'm just trying to survive." What we're seeing now is the slow but steady progress back to what will ultimately be normal, whatever that may be. It's clearly going to be a lot more savings than we had been, but I don't think we're going to go back to the time we were saving 10, 15 percent of our income. If we saved 5, 6 percent of it, that would be an awful lot. But again, because we don't have that extra money to re-do our kitchens and our bathrooms and to buy new cars and things like that, we're going to be spending significantly less over the next few years.

Vigeland: Given that our spending has ticked up a bit, why do you think we think things are better? What's the signal been?

Naroff: I think the key really is the job market itself and while we're not seeing a whole lot of jobs being created, they're slowly coming back, there's no question. But we've got a long way to go. I used to make the comment that if you look to your left and you look to your right, and you saw that one of the people next to you were gone, you got really worried. When you saw they were both gone, you got panicked. Well, what's happening now is that after all the cutbacks we got last spring, people are looking to their left and looking to their right, and they're seeing that the people they are left working with are still there. The cutbacks are not causing people to be as fearful as they had been, because they're not happening anymore. Right now, I think people are much less worried about losing their job than they had been and that's why confidence is beginning to pick up. And that's one of the key reasons, why I think we're seeing a little bit more spending, because they're not as fearful of losing their jobs.

Vigeland: Joel Naroff is the president and founder of Naroff Economic Advisors. Thanks so much, it's been fun talking to you.

Naroff: It's always a pleasure.

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