Anyone who has been paying attention to the New York Fed’s Quarterly Report on Household Debt and Credit is probably aware that Americans are drowning in debt...
...Aggregate household debt climbed $116 billion during the third quarter to $12.96 trillion, edging past its previous peak from Q3 2008. But even as millennials struggle to pay down an insurmountable pile of student debt...
...CNBC is reporting that holiday spending this season is on track to hit a 12-year high, according to an annual survey of consumer spending habits. Keep in mind, that survey was taken before Comcast, Boeing, Fifth-Third Bank and AT&T announced they would be handing out last-minute holiday bonuses to rank-and-file employees...
But as both debt and holiday-related spending rise in tandem (suggesting that the former is being utilized to finance the latter), one Bloomberg columnist has estimated that, instead of paying down debt, one-fifth of consumer spending in Q3 went to items that people don’t really need...
Back in the 1950s, the economist John Kenneth Galbraith made a bleak argument about modern capitalism: Advertising can create artificial wants -- say, for the latest gadget or skin cream -- that spur ever-greater consumption without actually making people better off. As a result, economies can grow without improving the lot of humanity.
Whether or not he’s right -- it remains a matter of debate -- the idea raises an interesting empirical question: How much of what we consume is related to wants rather than needs?
This isn’t easy to answer using even the most detailed data on consumer spending, because many categories could go either way. A car, for example, could be pure transportation or a Ferrari. That said, a number of categories -- such as gambling, hairdressers and recreational vehicles -- are pretty clearly nonessential. Following them consistently over time can give at least a sense of trend.
So how are we doing? In the third quarter of this year, nonessential items (of my own subjective selection 1) accounted for almost 18.5 percent of total U.S. consumer spending. That’s the highest share since June 2000.
According to the column’s author, Mark Whitehouse, this nonessential spending has reached its highest level in 17 years...
Whitehouse does list one interesting caveat: Because he calculates the value of nonessential goods in nominal dollars, the overall spending on nonessential items may have been constant in real terms...
...Of course, anyone who has sat through one of the Federal Reserve’s press conferences this year understands that inflation has been receding - not advancing - this year. Which means, if anything, 17% is a lowball figure.
To be sure, spending on life’s little luxuries is still far below its post-WWII peak (according to Whitehouse, conspircuous consumption in the US peaked in 1959)...
...But the fact that this subset of discretionary household spending is still growing, even as household debt rockets to all-time highs, is indicative of how consumers are burning the fiscal candle at both ends...