The Blog

Knowns and Economic Unknowns

12:00 AM, Nov 24, 2012 • By IRWIN M. STELZER
Widget tooltip
Single Page Print Larger Text Smaller Text Alerts

By the end of this long weekend, we will have eaten (46 million gobblers gobbled up), travelled (44 million 50+ mile trips in cars, planes, and trains), malled (147 million crazed bargain hunters), and spent enough time watching football to have become familiar with every vulnerable bone and ligament in the human body as player after player is carted off the field after some violent collision with an opponent’s behemoth. By Christmas, consumers will likely have spent about 4 percent more than they did last year in stores (bricks) and online (clicks).

christmas tree

For the first time, many retailers began their “door-buster” sales on Thursday evening rather than at 6 a.m. Friday, with Target ignoring the plea of some 400,000 petitioners to “save Thanksgiving” by remaining closed until Friday. More customers than ever, literally bloodied in past scrums, placed their orders on line. And the scramble for 40-inch flat screen TVs, $180 at Best Buy; Nikon digital cameras, $100 at Target; and HP deskjet printers, $29 at Walmart, will continue on cyber-Monday, when the web can be browsed at a leisurely pace on company rather than personal time.

There’s more, but you get the idea. Competition works for consumers, with technology making it so easy to compare prices that many retailers are offering refunds if competitors offer better deals. If you can’t be competitive “shame on you,” says Terry Lundgren, CEO of Macy’s, speaking from the floor of the chain’s New York Miracle on 34th Street against a background of customers that included thousands of foreigners in search of the bargains denied them by restrictions on competition in their own countries.

Whether consumers will continue to spend in the new year will determine the pace at which the American economy will grow in 2013. Some economists are calling a 2 percent annual growth rate “the new normal,” while quibblers who believe they can forecast growth within a few decimal points say 1.7 percent growth is more likely. Both guesses are based on the assumption that in 2013 consumers will continue to snap up large numbers of cars, and that the housing sector will continue to recover.

Auto sales should remain buoyant. The fleet of vehicles on the road is ageing, and with the jobless rate at least stabilized so that those in work can be reasonably confident that they will not be laid off—one of the reasons President Obama did so well despite continued high unemployment—there is little reason to defer gratification any longer. Besides, most buyers are sufficiently innumerate to be able to persuade themselves that the more fuel-efficient newer vehicles will “pay for themselves” in a relatively short time. So count on relatively good auto sales.

So, too, with houses. Interest rates are at record lows—around 3.3 percent for 30-year fixed-rate mortgages—and only last week Federal Reserve Board chairman Ben Bernanke told the New York Economic Club that the Fed will continue purchasing mortgage-backed securities to the tune of $40 billion each and every month to ensure that mortgage rates don’t go up. If not forever, at least into 2015. Sales of existing homes in October were 10.9 percent above year-earlier levels, and likely to end the year at their highest level since before the financial crisis hit. Prices are up 11 percent over last year, and inventories of unsold houses are down over 22 percent, to their lowest level relative to sales in almost seven years. The number of new homes being built and sold is also rising, although not to levels seen before the housing slump, and builders, whose shares by one measure are up 90 percent this year, are more confident than they have been since May 2006.

But one cheer only, please. Almost one-in-four sales were at prices below the level of the outstanding mortgage, banks are still reluctant to extend credit, and it is a long way from here to a housing market that will provide employment for lots of construction workers. Still, the trend is up rather than down.

Recent Blog Posts

The Weekly Standard Archives

Browse 19 Years of the Weekly Standard

Old covers