Less Vigorous Consumers

It is not news that the economy of the United States, irrespective of an upward blip in the gross domestic product in the third quarter of this year, is not doing well. The country has seen huge declines on its citizens personal balance sheets due to falling prices for stocks and real estate. Unemployment is abnormally high. The federal deficit is ballooning. The fed is inflating the currency at a dangerous rate as the dollar declines in value against gold and other currencies. Financial institutions are weak and plagued by bad and non-performing loans. On top of all that we have the most anti-growth and anti-business government since the 1970’s. Its current proposals include plans to increases taxes and regulations, punish people for using energy, and impose various costly mandates onto the members of the real economy while expanding the size and cost of government.

These are real and serious problems that will have deleterious effects on the growth of the economy for some time. However there is another factor, not often noticed, that I think will have at least some dampening effect on economic growth as measured by GDP, and thus probably on equity markets and on tax collections. That is the trend for more people to do more things for themselves outside of the counted, measured, and taxed economy.

My wife and I are an example. We have been semi-retired for three years. Before retirement we had fairly demanding full time jobs. Now we work at writing and do a little part time teaching, but a lot of our time is free. We have been using some of that new free time to do more things for ourselves that we might have hired done when we were busier and making more money.
When the exterior of our house needed painting a while back, I did it myself. The total GDP-impacting cost of the project was around a hundred dollars for paint. Before retirement, I might have used a painting contractor instead and paid him somewhere between two and four thousand dollars for the job. Our outcome – a repainted house- would have been the same, but the impact on GDP would have been quite different. My wife has stained or painted several cabinets and doors around our house in the last couple of years. She would probably have had someone do it if she had still been working full time. Again the result for us was the same, but instead of adding several thousand dollars to the GDP, she spent a couple or three hundred on materials. There are plenty of other examples – painting interiors, removing dead trees, roofing a storage shed, remodeling a half bath, growing a vegetable garden, doing some electrical wiring, cooking more while going to restaurants less, building walkways, and so on – where we are now doing more things ourselves, bringing us significant value but not doing much at all for the measured economy.

I think it is likely that more people will be behaving in a similar way in the next few years, partly because of the large number of boomers moving into retirement and partly as a reaction to the recent financial crisis. I have also noticed that, on average, people become less concerned about status and trendiness as they age and thus less likely to spend lots of money pursuing current fashion. Then there is the simple fact that many people, by the time they reach the age of retirement, already have a large fraction of the things they want. It seems to add up to boomers perhaps becoming far less vigorous consumers than they have been in the past.