Economics is all about consumption.
As you know, 'good times' don't last forever....yet, people want to believe they do. Like the turkey, who believes good times are commonplace until the third week of November, most people expect the good times to roll on. And so, they only see what they are looking for. If you understand that there are business cycles, you look for the unexpected and when it surfaces, you see it long before others do.
A healthy economy is largely a result of a reasonable balance between consumption today and consumption deferred, and it’s pretty clear that balance has been ridiculously out of whack for a while.
Our current problem is that much of the world has shifted rapidly from consuming way more than it could afford to consuming far less. The subsequent whiplash has left many people (and, in some cases, entire countries) broke, unemployed and deeply pessimistic about the future.
To figure out what our buying behavior says about the U.S. economy’s future, we have to understand what’s going on in the middle class.
For example, Recreational Vehicle (RV) and Watercraft industries lead the economy during the up and downside of a business cycle. Traditionally, these recreational industries have led the U.S. Stock Market, housing starts and other early indicators because they are the largest discretionary purchases made by the consumer.
During a time of high gasoline prices, distribution disruptions and a declining national economy in the mid-1970s, I was general sales manager for an RV and Marine industries equipment supplier. These two industries represented the only markets for our company that had less than a 50% marketshare...with two larger and better financed companies holding over 50 percent of the market. Our management team quickly became energized and focused to increase marketshare because the alternative was unacceptable.
That is when I discovered that tough times are a very good time to build marketshare. Your prospects are more receptive to switching suppliers and suppliers are motivated to increase their sales in order to survive. With that knowledge and motivation, our company won over 90% marketshare within a two year period and the company survived and prospered.
One of the most consistently accurate indicators of current business cycles was Champagne sales. The amount of French Champagne that Americans consume has predicted — with nearly 90 percent accuracy — the average American income one year later. Apparently, when we pop a Champagne cork, we know that good times are ahead. Champagne sales hurtled upward twice in recent history — at the peak of the Internet bubble in 1999 and during the heyday of the housing bubble in 2007. These were both followed by slowdowns as fewer people found reason to celebrate.
When the dust clears from the current crisis in a year or 2 or 10, it will probably become obvious that the recent decades were a giddy consumption mirage fueled, in part, by free-flowing debt. The country can’t keep buying a lot more from everyone else than it is able to sell them. America will, most likely, need to find a more normal, sustainable level of consumption, and that’s exactly the problem.
We don’t know what normal consumption looks like.
Source: The New York Times, December 18, 2011
