As I wrote about in Tuesday's column, Health Care Names Pressure Other Insurance, Retail Stocks, the compulsory reallocation of income into insurance that has been caused by the implementation of the Affordable Care Act, is also causing retail sales to continue to decline as is most evident in the Johnson Redbook Index.
The year-over-year rate of nominal growth in retail sales is about 1.2%, with the real rate, using the trend deflator is about .9% and the real rate per capita of about .2%. These are recessionary figures by all definitions.
The reallocation of income is also one of the prime drivers of the declining rate of first-time home-buyer purchases.
There is, however, another oddity being evidenced in consumption that does not comport with this scenario. The rate of growth of automobile sales and the continuing increase in demand for sport utility vehicles vs. sedans appears to be indicating that there is a secular shift in consumption patterns. That is especially the case with the younger consumers, specifically the 18-to-34-year-old demographic.
Although the rate of growth in automobile sales has declined from about 8.4% in 2013 and 7.9% in 2014 to about 4.5% annualized now, it's still way above retail sales and housing in a pattern that is now about five years old and continuing.
This is not normal.
Many reasons have been assumed during the past several years for this growing diversion in consumption patterns. These include low interest rates, longer loan terms, better lease terms, the recent decline in oil prices, the reintroduction of subprime auto loans and the idea that young consumers were buying cars because they hadn't given up on being able to qualify to buy a house.
The problem with this is that many of these same issues should also have been more supportive of housing and retail sales than has been the case. The assumption for years been that this situation is a temporary residual effect of the recent past housing and capital market problems that would reverse as the economy began to grow again. It assumed that consumers would return to pursuing the traditional American Dream of getting a job, getting married, buying a house, and filling the house with stuff.
That is not happening. There appears to be something fundamentally different about how young consumers spend vs. that of the boomer generation and older. It appears to be widening with the economy evidencing signs of a bifurcation in the consumer patterns of the old vs. the young.
That bifurcation is evidenced in the surge in size of new homes being built. The average size of new homes in the U.S. steadily increased from about 1,000 square feet in the 1950's to about 2,350 square feet. in 2006. Immediately following the last housing crisis, new home sizes declined to about 2,100 square feet. But within the past few years, those sizes have surged again to about 2,500 square feet and climbing.
The purchasers of these new homes are increasingly the baby boomers, not first time home buyers. The boomers are increasing their consumption along the traditional lines that the structure of the economy and the methods for measuring economic activity are associated with. The generations behind them are decreasing their consumption of things and choosing a different path.
This has profound implications for the economy, companies of all kinds, and economic analysis. Younger consumers, whether consciously or not, appear to have become aware that a house is a liability, an expense item and a lifestyle choice, as are the things with which you fill it.
This fact has traditionally been lost on U.S. consumers who have bought into the idea that attainment of the American Dream and the perception of accomplishment and personal security that is perceived to go along with it is inextricably tied to the purchase of a house.
The younger generations appear to be exhibiting with action that not only do they not buy into this concept, but that they do buy into the polar opposite idea of minimalism and simple living.
Those actions appear to be based on the perception that newer reliable transportation and the freedom of movement it affords, untethered by the leveraged ownership of a house and the things that go into it, is their American Dream.
There is more beyond the dichotomy of increasing auto sales occurring simultaneously with stagnating house sales and recessionary retail sales that appears to be supportive of this concept of a new American Dream. That is the outperformance of other sectors associated with travel, sporting goods, and gaming.
I will write about those sectors and specific companies in Thursday's column.
