There are times when excessive attention to monthly data reporting what’s up, what’s down, can be allowed to obscure underlying structural changes in an economy. With the game of what-will-Yellen-do-next in full flow, this is one of those times. No, the proverbial tectonic plates are not shifting, whatever that phrase might mean when applied to an economy other than one in the throes of an irreversible Margaret Thatcher-style revolution. But there are significant trends underway, trends that are unlikely to be reversed and which, as they play out, will result in an American economy considerably different from the one we have today.
Perhaps the most notable is the change in how Americans choose to live. We seem to be in what might be called “the full-closet era.” No more stuff. More “experiences.” Consumers are spending more but department stores, from Macy’s, a dominant player in that sector (sales at stores open at least a year down 2.1 percent), to Kohl’s (sales flat, profits down), are watching those dollars pass them by as consumers use their money for gym memberships, to dine out, travel, buy apps, and find more and more unfree uses for their cell phones. Perhaps the only sector in which stuff trumps experience is the booming auto sector, but even there much of the increased revenue and profit is coming from the experiences consumers want their cars to deliver in addition to getting them from here to there: videos in the back seats to reduce the incidence of the famous question, “Are we there yet, mommy?”; Apple CarPlay in the front to provide the driver access to unlimited musical entertainment; heated and air-cooled steering wheels.
There are exceptions. Affluent consumers are keeping the tills and credit card machines busy at high-end retailer Nordstrom’s (sales up 5 percent), and sales of yoga pants to bedeck the sleek torsos of trainers and the not-so-sleek bodies of their clients at the nation’s gyms are on the rise, as are sales of multi-coloured bikers’ outfits to so many consumers that a current joke has a wife telling her un-thin husband, “I have tolerated your drinking, your womanising, but I will not tolerate your biker outfits.”
Retailing is not the only sector in which the rules of engagement with consumers, who account for about 70 percent of the nation’s GDP, are changing. Americans’ choice of what sort of roof to put over their heads in very different from it once was. Only about a decade ago, in 2004, 69.2 percent of all homes were occupied by their owners; the home ownership rate has since fallen to 63.4 percent, the lowest in almost fifty years despite some of the most attractive mortgage interest rates on record. In part this is due to the difficulty young couples have in qualifying for a mortgage, as once-burned, twice-fined and increasingly risk-averse banks, looking over their shoulders at their regulators, raise their lending standards.
But even a further loosening of credit standards that have already been relaxed for “jumbo” loans (in excess of $417,000 and $625,500, depending on the region) is unlikely to change the trend towards renting rather than owning, last month’s increase in construction of single-family homes notwithstanding. Jordan Rappaport and Daniel Molling, economists at the Federal Reserve Bank of Kansas, find that adults in their 20s and early 30s, so called millennials, are not alone in preferring to rent rather than buy. Ageing baby boomers, now in their 50s and 60s, have tired of mowing, hunting for plumbers, fixing leaky roofs and coping with the nightmares that accompany realization of the one-time American dream of home ownership. They have accounted for the bulk of new renters, and are likely to continue to “be the main drivers of multifamily [apartment] construction as they age through their senior years,” conclude the Bank’s economists.
Phoenix-headquarted Alliance Residential, a major builder in the Southwest and other regions, has figured out how to meet the new demand for rental housing. The managing director of the division that covers Arizona, Utah and New Mexico told Bloomberg Businessweek that its ground-floor units are designed to attract millennials while its larger, more poshly equipped upper-floor apartment (wine refrigerators and touch-button window shades) are aimed at the ageing boomers. Another builder in the Phoenix area caters to boomers, with a fully equipped gym and a professional-size indoor basketball court for use of its renters.
It might not be much of an exaggeration to say that it is far from certain that the long-held American dream of homeownership will re-emerge as the job market improves. Boomers want to – this phrase seems to have replaced the earlier cocktail-party favourite, “My house is worth twice what I paid for it” – “shut the door behind me and go on a cruise.” As for millennials, Chris Matthews, a writer for Fortune magazine (not the TV talk-show celebrity), reckons that the inflation-adjusted monthly cost of carrying a median-priced home is lower now than it was in 1990 because of low interest rates. He suggests, “Maybe young adults aren’t buying homes simply because they don’t want to.” They would rather rent, preferably in an urban area in easy reach of restaurants, theatres and the excitement of city street life. So rents are up and the vacancy rate down. No car needed, especially with Uber a click away. That, and development of driverless cars that might be built in Silicon Valley, have Detroit brows furrowed in anticipation of still another trend, this in transportation preferences of millennials. Why buy, and incur monthly loan payments and parking costs, when we can “rent” from Uber whenever we want to get to some leisure activity – a bar, restaurant, cinema – that is not within walking distance? And the restaurants within walking distance are far trendier, healthier, and all-around better than those drive-in franchises and their low-end hamburgers, which explains part of the problem facing McDonald’s, Wendy’s and others as they try to cope with the economy’s new landscape.
Then there is the mobility surge, the urge to have what we want, when and where we want it. That urge has already decimated the land-line telephone industry as more and more consumers rely entirely on their cell phones and on voice-over-Internet providers. Now it is the turn of the cable companies, who have had their way with consumers for decades, combining rising rates with bundles forcing consumers to pay for channels they do not want in order to get those they do, capped by appalling service. According to the University of Michigan’s Consumer Satisfaction Survey, the five most unpopular companies in America are Time Warner and Comcast’s four companies (they each operate a television and an Internet service), and Mediacom, a cable company serving smaller cities. Cable cutters are gleefully abandoning their one-time monopoly suppliers in favor of “streamers” such as Netflix, Amazon Instant Video and other providers of what they want to see, at home or on the road, no cable hook-up required. That will, in turn, change what film studios produce, catering to screens measured in inches rather than in feet. And what sports stars can command for their talents, as more and more consumers opt out of paying for sports channels they do not watch but are forced to pay for as part of a “bundle”.
There are things wrong with the American economy. But a lack of flexibility is not one of them. Schumpeter’s gale of creative destruction is giving consumers what they want, and sending no-longer demand products and services the way of Xerox machines, Smith-Corona typewriters, and pay telephone booths.