tag:theconversation.com,2011:/uk/topics/consumer-spending-19758/articlesConsumer spending – The Conversation2024-02-04T01:02:06Ztag:theconversation.com,2011:article/2189272024-02-04T01:02:06Z2024-02-04T01:02:06ZMortgage and inflation pain to ease, but only slowly: how 31 top economists see 2024<figure><img src="https://images.theconversation.com/files/572630/original/file-20240201-21-xh5xpo.png?ixlib=rb-1.1.0&rect=45%2C86%2C1871%2C870&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>A panel of 31 leading economists assembled by The Conversation sees no cut in interest rates before the middle of this year, and only a slight cut by December, enough to trim just $55 per month off the cost of servicing a $600,000 variable-rate mortgage.</p>
<p>The <a href="https://theconversation.com/au/topics/conversation-economic-survey-81354">panel</a> draws on the expertise of leading forecasters at 28 Australian universities, think tanks and financial institutions – among them economic modellers, former Treasury, International Monetary Fund and Reserve Bank officials, and a former member of the Reserve Bank board.</p>
<p>Its forecasts paint a picture of weak economic growth, stagnant consumer spending, and a continuing per-capita recession.</p>
<p>The average forecast is for the Reserve Bank to delay cutting its cash rate, keeping it near its present 4.35% until at least the middle of the year, and then cutting it to <a href="https://cdn.theconversation.com/static_files/files/3028/The_Conversation_AU_February_2024_Economic_Survey.pdf">4.2%</a> by December 2024, 3.6% by December 2025 and 3.4% by December 2026.</p>
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<p>The gentle descent would deliver only three interest rate cuts by the end of next year, cutting $274 from the monthly cost of servicing a $600,000 mortgage and leaving the cost around $1,100 higher than it was before rates began climbing.</p>
<p>Six of the experts surveyed expect the Reserve Bank to increase rates further in the first half of the year, while 20 expect no change and three expect a cut.</p>
<p>Former head of the NSW treasury Percy Allan said while the Reserve Bank would push up rates in the first half of the year to make sure inflation comes down, it would be forced to relent in the second half of the year as unemployment grows and the economy heads towards recession.</p>
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<a href="https://theconversation.com/the-7-new-graphs-that-show-inflation-falling-back-to-earth-220670">The 7 new graphs that show inflation falling back to earth</a>
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<p>Warwick McKibbin, a former member of the Reserve Bank board, said the board would push up rates twice more in the first half of the year as insurance against inflation before leaving them on hold.</p>
<p>Former Reserve Bank of Australia chief economist Luci Ellis, who is now chief economist at Westpac, expects the first cut no sooner than September, believing the board will wait to see clear evidence of further falls in inflation and economic weakening before it moves.</p>
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<h2>Inflation to keep falling, but more gradually</h2>
<p>Today’s <a href="https://www.rba.gov.au/">Reserve Bank board meeting</a> will consider an inflation rate that has come down <a href="https://theconversation.com/the-7-new-graphs-that-show-inflation-falling-back-to-earth-220670">faster than it expected</a>, diving from 7.8% to 4.1% in the space of a year.</p>
<p>The newer more experimental monthly measure of inflation was just <a href="https://theconversation.com/the-7-new-graphs-that-show-inflation-falling-back-to-earth-220670">3.4%</a> in the year to December, only points away from the Reserve Bank’s target of 2–3%.</p>
<p>But the panel expects the descent to slow from here on, with the standard measure taking the rest of the year to fall from 4.1% to 3.5% and not getting below 3% until <a href="https://cdn.theconversation.com/static_files/files/3027/The_Conversation_AU_2024_economic_survey.pdf">late 2025</a>.</p>
<p>Economists Chris Richardson and Saul Eslake say while inflation will keep heading down, the decline might be slowed by supply chain pressures from the conflict in the Middle East and the boost to incomes from the <a href="https://theconversation.com/albanese-tax-plan-will-give-average-earner-1500-tax-cut-more-than-double-morrisons-stage-3-221875">tax cuts</a> due in July.</p>
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<h2>Slower wage growth, higher unemployment</h2>
<p>While the panel expects wages to grow faster than the consumer price index, it expects wages growth to slip from around <a href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/latest-release">4%</a> in 2023 to 3.8% in 2024 and 3.4% in 2025 as higher unemployment blunts workers’ bargaining power.</p>
<p>But the panel doesn’t expect much of an increase in unemployment. It expects the unemployment rate to climb from its present <a href="https://www.datawrapper.de/_/w9h9f/">3.9%</a> (which is almost a long-term low) to 4.3% throughout 2024, and then to stay at about that level through 2025.</p>
<p>All but two of the panel expect the unemployment rate to remain below the range of 5–6% that was typical in the decade before COVID.</p>
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<a href="https://theconversation.com/we-can-and-should-keep-unemployment-below-4-say-top-economists-211277">We can and should keep unemployment below 4%, say top economists</a>
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<p>Economic modeller Janine Dixon said the “new normal” between 4% and 5% was likely to become permanent as workers embraced flexible arrangements that allow them to stay in jobs in a way they couldn’t before.</p>
<p>Cassandra Winzar, chief economist at the Committee for the Economic Development of Australia, said the government’s commitment to full employment was one of the things likely to keep unemployment low, along with Australia’s demographic transition as older workers leave the workforce.</p>
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<h2>Slower economic growth, per-capita recession</h2>
<p>The panel expects very low economic growth of just 1.7% in 2024, climbing to 2.3% in 2025. Both are well below the 2.75% the treasury believes the economy is <a href="https://treasury.gov.au/speech/the-economic-and-fiscal-context-and-the-role-of-longitudinal-data-in-policy-advice">capable of</a>.</p>
<p>All but one of the forecasts are for economic growth below the present population growth rate of 2.4%, suggesting that the panel expects population growth to exceed economic growth for the second year running, extending Australia’s so-called <a href="https://theconversation.com/were-in-a-per-capita-recession-as-chalmers-says-gdp-steady-in-the-face-of-pressure-212642">per capita recession</a>.</p>
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<p>The lacklustre forecasts raise the possibility of what is commonly defined as a “technical recession”, which is two consecutive quarters of negative economic somewhere within a year of mediocre growth.</p>
<p>Taken together, the forecasters assign a 20% probability to such a recession in the next two years, which is lower than in <a href="https://theconversation.com/two-more-rba-rate-hikes-tumbling-inflation-and-a-high-chance-of-recession-how-our-forecasting-panel-sees-2023-24-208477">previous surveys</a>.</p>
<p>But some of the individual estimates are high. Percy Allen and Stephen Anthony assign a 75% and 70% chance to such a recession, and Warren Hogan a 50% chance.</p>
<p>Hogan said when the economic growth figures for the present quarter get released, they are likely to show Australia is in such a recession at the moment. </p>
<p>The economy barely grew at all in the September quarter, expanding just <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-national-income-expenditure-and-product/latest-release">0.2%</a> and was likely to have shrunk in the December quarter and to shrink further in this quarter.</p>
<p>The panel expects the US economy to grow by 2.1% in the year ahead in line with the <a href="https://www.imf.org/en/Publications/WEO/Issues/2024/01/30/world-economic-outlook-update-january-2024">International Monetary Fund</a> forecast, and China’s economy to grow 5.4%, which is lower than the International Monetary Fund’s forecast.</p>
<h2>Weaker spending, weak investment</h2>
<p>The panel expects weak real household spending growth of just 1.2% in 2014, supported by an ultra-low household saving ratio of close to zero, down from a recent peak of 19% in September 2021.</p>
<p>Mala Raghavan of The University of Tasmania said previous gains in income, rising asset prices and accumulated savings were being overwhelmed by high inflation and rising interest rates. </p>
<p>Luci Ellis expected the squeeze to continue until tax and interest rate cuts in the second half of the year, accompanied by declining inflation.</p>
<p>The panel expects non-mining investment to grow by only 5.1% in the year ahead, down from 15%, and mining investment to grow by 10.2%, down from 22%.</p>
<p>Johnathan McMenamin from Barrenjoey said private and public investment had been responsible for the lion’s share of economic growth over the past year and was set to plateau and fade as a driver of growth.</p>
<h2>Home prices to climb, but more slowly</h2>
<p>The panel expects home price growth of 4.6% in Sydney during 2024 (down from 11.4% in 2024) and 3.1% in Melbourne, down from 3.9% in 2024.</p>
<p>ANZ economist Adam Boyton said decade-low building approvals and very strong population growth should keep demand for housing high, outweighing a drag on prices from high interest rates. While high interest rates have been restraining demand, they are likely to ease later in the year.</p>
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<p>In other forecasts, the panel expects the Australian dollar to stay below US$0.70, closing the year at US$0.69, it expects the ASX 200 share market index to climb just 3% in 2024 after climbing 7.8% in 2023, and it expects a small budget surplus of A$3.8 billion in 2023-24, followed by a deficit of A$13 billion in 2024-25.</p>
<p>The budget surplus should be supported by a forecast iron ore price of US$114 per tonne in December 2024, down from the present US$130, but well up on the <a href="https://budget.gov.au/content/myefo/index.htm">US$105</a> assumed in the government’s December budget update.</p>
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<h2>The Conversation’s Economic Panel</h2>
<p><em>Click on economist to see full profile.</em></p>
<p><iframe id="tc-infographic-1014" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/1014/ed3b94caed943dd75aa383a014aca7a10b13bf10/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p>
<p><strong>Download the answers as <a href="https://cdn.theconversation.com/static_files/files/3030/The_Conversation_AU_Feb_2024_economic_survey.xlsx?1707030546">XLS</a> <a href="https://cdn.theconversation.com/static_files/files/3028/The_Conversation_AU_February_2024_Economic_Survey.pdf">PDF</a></strong></p><img src="https://counter.theconversation.com/content/218927/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin is economics editor of The Conversation AU.</span></em></p>The Conversation’s expert 00panel expects inflation to continue to fall, but more gradually, and it expects the RBA to be slow in responding. Unemployment should climb and economic growth weaken.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2125932023-09-13T08:07:31Z2023-09-13T08:07:31ZWhy China’s real estate crisis should make the global travel industry nervous<figure><img src="https://images.theconversation.com/files/547128/original/file-20230908-23-4t57w9.jpg?ixlib=rb-1.1.0&rect=66%2C0%2C10671%2C4464&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The global tourism industry is rebounding – but cautious Chinese consumers are choosing to stay closer to home.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/shanghai-royalty-free-image/859753342">DuKai photographer/Moment/Getty Images</a></span></figcaption></figure><p>Once upon a time – in 2019 – tourists from China were among the best-traveled in the world. They collectively spent <a href="https://www.wsj.com/articles/worlds-biggest-tourism-spenders-arent-travelingand-may-not-for-years-3195de39">more than US$250 billion</a> abroad – nearly twice as much as their nearest competitors, the Americans – and <a href="http://www.xinhuanet.com/english/2020-11/11/c_139509342.htm">logged more than 150 million departures</a> on international flights that year.</p>
<p>The COVID-19 pandemic <a href="https://doi.org/10.1177/13548166211041209">shook the Chinese travel industry</a>, as it did the world’s. But despite the easing of pandemic restrictions – and a <a href="https://www.unwto.org/news/tourism-on-track-for-full-recovery-as-new-data-shows-strong-start-to-2023">global tourism rebound</a> – Chinese tourists have been <a href="https://www.ft.com/content/0d27a68c-7ca0-4069-a401-a5522755d9d1">slow to return</a> to the global skies. The reason, interestingly enough, could be found in the very land and houses Chinese planes fly over.</p>
<p>As <a href="https://scholar.google.com/citations?user=GG5p4TkAAAAJ&hl=en">a professor of marketing</a> who specializes in consumer psychology, I’m interested in how China’s <a href="https://www.nytimes.com/2023/08/20/business/china-property-crisis-country-garden.html">struggling real estate sector</a> is dragging down consumer spending – and having an effect on tourist destinations around the world.</p>
<h2>Real property, real problems</h2>
<p>To understand the issue, first you need to understand China’s current real estate crisis. Just how bad is it? China’s largest developer, Country Garden, lost <a href="https://www.nytimes.com/2023/08/30/business/china-country-garden-share-sell.html">$7.1 billion</a> in the first six months of 2023; investors concerned about <a href="https://www.reuters.com/business/default-dodged-country-gardens-upcoming-debt-payments-stir-worries-2023-09-07/">potential debt default</a> have sent its stock plummeting. </p>
<p>Another major developer, the troubled China Evergrande Group, posted a <a href="https://www.bbc.com/news/business-66636359">$4.5 billion loss</a> over the same period and <a href="https://www.reuters.com/world/china/china-evergrande-files-protection-us-court-part-32-bln-debt-overhaul-2023-08-18/">sought bankruptcy protection</a> in the U.S. last month. It gained international attention in 2021 after it <a href="https://www.cnn.com/2021/12/10/business/evergrande-government-intervention-intl-hnk/index.html">defaulted on $300 billion</a> of debt, sparking the current crisis. </p>
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<p>One major – if indirect – reason China’s real estate industry is so shaky is that local governments are <a href="https://www.thepaper.cn/newsDetail_forward_13283501">heavily dependent</a> on tax revenue from land sales, as well as property taxes and real estate development fees. At the same time, about 70% of the general population’s assets are <a href="https://www.sohu.com/a/665428422_121123889">invested in real estate</a>.</p>
<p>Those facts enticed developers and local governments alike to borrow excessively to fund new development. When the central government started to implement <a href="https://pdf.dfcfw.com/pdf/H301_AP202305101586440193_1.pdf">more stringent regulations</a> to curb speculation and control prices, the market predictably cooled – and has kept cooling. In July 2023, new home sales from China’s top 100 developers were down 33% from the previous year. Prices are slumping, too.</p>
<p>This has had a cascade of effects on the Chinese economy. Most immediately, as demand for construction materials and labor has fallen, hiring has cooled and consumers are <a href="https://www.wsj.com/world/china/chinas-economy-shows-fresh-signs-of-weakness-in-factories-consumer-spending-ad46fa8a">tightening their belts</a>. Local governments are also struggling to stay afloat with less revenue, with some provinces being forced to <a href="https://www.voanews.com/a/civil-service-pay-cuts-reflect-china-s-economic-struggles-/7202609.html">slash government salaries and benefits</a>.</p>
<h2>Why staycations suddenly appeal</h2>
<p>The situation is especially challenging for homeowners, who are burdened with shrinking wealth as housing prices fall. This has had a ripple effect on spending, as cautious consumers increasingly prioritize their savings – worsening the economic challenge for businesses across the country.</p>
<p>Unsurprisingly – at least to anyone who’s paid attention to the world economy – what happens in China doesn’t stay in China. And the global tourism industry has been hit particularly hard as newly budget-conscious Chinese homeowners pare back their spending. </p>
<p>As of April 2023, Chinese tourism to Japan <a href="https://www.163.com/dy/article/I5GR1FB40544QVMF.html">was down some 85% since 2019</a>, even though overall visits to Japan had rebounded to 70% of pre-pandemic levels. Chinese tourism to popular European destinations such as France, Switzerland, Greece and Spain <a href="https://www.handelsblatt.com/unternehmen/handel-konsumgueter/reisebranche-europa-wartet-sehnsuechtig-auf-touristen-aus-china/29020102.html">has also fallen sharply</a>. All in all, China’s outbound travel spending is forecast to be <a href="http://travel.china.com.cn/txt/2023-06/05/content_86374824.shtml">down nearly 70%</a> this year from its pre-pandemic peak.</p>
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<a href="https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Beneath a sign reading Sal Tours, a man and woman behind a desk show paperwork to a woman in front of the desk." src="https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/547612/original/file-20230911-23-ppbxez.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">A customer discusses overseas travel opportunities with two employees at an agency in Chengdu, China, on Feb. 10, 2023.</span>
<span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/citizen-consults-about-overseas-travel-products-at-a-travel-news-photo/1247045092">Tang Wenhao/Xinhua via Getty Images</a></span>
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<p>To be fair, tourism within China is bouncing back – to a degree – as frugal travelers increasingly opt to <a href="https://www.cnbc.com/2023/07/26/china-travel-boom-happen-but-recovery-is-underway.html">vacation closer to home</a>. The China Tourism Academy predicts that domestic tourism will hit <a href="https://www.bloomberg.com/news/articles/2023-07-28/china-s-domestic-tourism-to-hit-90-of-pre-covid-levels-in-2023">90% of pre-pandemic levels</a> in 2023. But that alone won’t offset the impact of lower consumer confidence. Part of the reason is that the amount of money <a href="https://www.reuters.com/world/china/chinas-domestic-travel-recovery-marred-by-anti-spending-special-forces-2023-05-17/">travelers are willing to spend</a> is down.</p>
<p>And faced with demand challenges as well as the effects of COVID-19 and geopolitical strife, Chinese travel agencies have been shuttering en masse in recent years. From January to April 2022, some 8,500 tourism agents and firms <a href="https://finance.sina.com.cn/chanjing/cyxw/2022-05-12/doc-imcwiwst7042907.shtml">declared bankruptcy</a>. Even assuming some reopen, that churn and disruption bode ill for the sector.</p>
<p>Global tourism has faced a challenging few years, with the pandemic and increased fuel costs putting off would-be travelers. With Chinese consumers feeling down in the dumps over the economy and opting for modest vacations, a recovery will be that much harder.</p><img src="https://counter.theconversation.com/content/212593/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Zhiyong Yang does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Big-spending Chinese tourists once buoyed the global travel industry. But with Chinese economy looking a little shaky, more are staying at home.Zhiyong Yang, Professor of Marketing, Miami UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2026342023-03-27T15:13:31Z2023-03-27T15:13:31ZSeven likely consequences from the banking crisis that most people haven’t realised yet<figure><img src="https://images.theconversation.com/files/517664/original/file-20230327-18-s2scl1.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Wobbly times. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/investment-risk-uncertainty-financial-sector-economic-2203578317">PhBodrova</a></span></figcaption></figure><p>With four banks down in the US and Europe and at least several more wobbling, we’re currently in the throes of the worst banking strife since 2007-08. Aggressive <a href="https://www.weforum.org/agenda/2022/10/comparing-the-speed-of-u-s-interest-rate-hikes-1988-2022/">interest rate hikes</a> have meant that banks are sitting on hefty losses on their portfolios of government bonds – <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4387676">some US$2 trillion</a> (£1.6 trillion) or 15% losses on US banks alone. </p>
<p>This makes many banks vulnerable to the same kind of funding problems that brought down Silicon Valley Bank – <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4387676">one in ten banks</a> are sitting on even greater losses and tighter funding, putting the lie to any idea that SVB was unusual. There may well be potential for further bank runs as anxious customers withdraw their money: US banks alone have <a href="https://www.businessinsider.com/signature-svb-us-banks-have-over-1-trillion-uninsured-deposits-2023-3?r=US&IR=T">over US$1 trillion</a> in uninsured customer deposits. All eyes will be on <a href="https://www.bbc.co.uk/news/business-65064378">Deutsche Bank</a> and <a href="https://www.ft.com/content/4dfd050b-d1f2-4d21-b083-d80d0c957c7c">First Republic</a> to see if they can overcome the market jitters of the past few days. </p>
<p>The Federal Reserve and other central banks are reassuring everyone that the financial system is sound and bears little comparison to 2008. Nonetheless, there are a number of foreseeable consequences for the medium term that are barely being discussed yet. </p>
<h2>1. Weaker bank lending</h2>
<p>When someone borrows money, they normally have to pay extra to borrow for a longer duration than a shorter duration, because it’s generally riskier to lend further into the future. But this flips when investors get nervous about the immediate future, which is what has happened right now (we say the <a href="https://www.marketwatch.com/story/bond-market-screams-rate-cuts-as-yield-curve-points-to-real-time-slowdown-in-u-s-economy-e6721ab0">yield curve has inverted</a>). This points to a recession in the coming months. </p>
<p>Banks are already reluctant to lend because they are having to pay more to borrow from one another at today’s interest rates. Therefore the broader economic uncertainty is likely to make it even harder for consumers and businesses to get credit. In the aftermath of the 2007-09 crisis, US bank lending fell by <a href="https://fred.stlouisfed.org/series/TOTLL">almost 11%</a> . </p>
<h2>2. Government borrowing difficulties</h2>
<p>Banks have got into trouble from investing in long-term government bonds, supposedly one of the safest assets in the market, which raises questions about to what extent they will be willing to do so in future. Governments typically issue bonds of upwards of a year to finance longer term or larger-scale investments, but may find this harder at a time when there are hefty bills to pay. </p>
<p>For instance the ageing of the <a href="https://www.pewresearch.org/fact-tank/2020/04/28/millennials-overtake-baby-boomers-as-americas-largest-generation/">huge baby boomer generation</a> is putting significant pressure on healthcare, requiring <a href="https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1464018/">heavy government investment</a> into medical research, healthcare infrastructure and extra workers. The <a href="https://www.weforum.org/agenda/2022/01/net-zero-cost-3-5-trillion-a-year/">green industrial</a> policy agenda entails enormous costs too. </p>
<p>If banks are not willing to buy long-term bonds are readily as before, the cost of borrowing will rise at a time when most governments are <a href="https://data.oecd.org/gga/general-government-debt.htm">already struggling</a> with high levels of debt. </p>
<h2>3. More inflation</h2>
<p>Central banks could step in and buy more government bonds directly to provide their governments with the necessary funds. Unfortunately this is tricky, since such purchases would potentially increase the money supply and make inflation worse than it is already. </p>
<p>Inflation has tailed down a little in countries such as <a href="https://tradingeconomics.com/united-states/inflation-cpi">the US</a> and <a href="https://www.statista.com/statistics/306648/inflation-rate-consumer-price-index-cpi-united-kingdom-uk/">UK</a> since the peaks of 2022, but is still well above the 2% target. If central banks have to directly support more government borrowing, expect more upward pressure on prices. This in turn will put more pressure on central banks to keep interest rates higher. </p>
<p>So far, the Federal Reserve (the US central bank), has tried to minimise the damage by setting up <a href="https://www.reuters.com/markets/us/banks-sought-record-fed-liquidity-wake-svb-collapse-2023-03-16/">a facility</a> to allow banks to borrow against their government bonds at book value. In just a couple of weeks, US banks <a href="https://raoulpal.substack.com/p/fed-liquidity-the-gmi-top-5-weekly?sd=pf">have already borrowed</a> nearly half a trillion US dollars. But again, there are limits to how much assistance can be provided without jeopardising the fight against inflation. </p>
<h2>4. Fewer jobs</h2>
<p>So far, the jobs market <a href="https://www.reuters.com/markets/us/us-weekly-jobless-claims-decline-further-2023-03-02/">in the US</a> and <a href="https://www.statista.com/statistics/1118923/uk-jobless-claims/">also the UK</a> has been fairly resilient. But if credit becomes more scarce and there is a recession, that situation could change quite quickly. </p>
<h2>5. Lower house prices</h2>
<p>The housing market in <a href="https://fortune.com/2023/03/24/these-global-housing-markets-further-slide-goldman-sachs-home-price-correction/">the US</a> and <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/housepriceindex/december2022">UK</a> has also held up quite well, despite higher interest rates. But in an environment of prolonged high interest rates and reduced bank lending, house prices could start falling more sharply: after the 2007-09 crisis, US house prices <a href="https://fred.stlouisfed.org/series/USSTHPI">fell by almost 20%</a>. </p>
<p><strong>UK average house prices</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Chart showing UK house prices" src="https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517627/original/file-20230327-14-x8c1lw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.twindig.com/market-views/latest-average-uk-regional-house-prices">Twindig</a></span>
</figcaption>
</figure>
<h2>6. Less consumer spending</h2>
<p>With households already having to find more to cover higher mortgage payments, consumer spending is <a href="https://tradingeconomics.com/united-kingdom/consumer-spending">struggling</a>. A fall in house prices and a rise in unemployment will further affect how wealthy people think they are, which could further reduce how much they are willing to spend. </p>
<p><strong>UK consumer spending</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Consumer spending chart" src="https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=280&fit=crop&dpr=1 600w, https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=280&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=280&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=352&fit=crop&dpr=1 754w, https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=352&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/517647/original/file-20230327-25-f61sc0.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=352&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The y-axis show consumer spending in millions of £. Note that it doesn’t take account of inflation.</span>
<span class="attribution"><a class="source" href="https://tradingeconomics.com/united-kingdom/consumer-spending">Trading Economics</a></span>
</figcaption>
</figure>
<h2>7. The demise of smaller banks</h2>
<p>To prevent bank runs, governments could also step in and potentially insure all customer deposits: in the US, for example, customers’ money is only safe up to US$250,000, while in the UK it’s £85,000. The problem with extending this protection is that it would be both expensive and difficult to get past politicians since it means rescuing wealthy people. </p>
<p>This is why US treasury secretary, Janet Yellen, <a href="https://www.reuters.com/markets/us/us-working-restore-capacity-designate-non-bank-finance-institutions-systemic-2023-03-22/">recently said</a> this wasn’t an option, except maybe for big banks whose collapse could pose a systemic risk – meaning it could threaten the entire global banking system. Yet if you give greater deposit protection to these banks, you make them safer than the smaller banks – indeed, they already have <a href="https://theconversation.com/the-european-central-bank-seems-to-have-got-away-with-raising-interest-rates-in-the-middle-of-a-banking-crisis-heres-why-202052">tougher funding requirements</a> in the US. </p>
<p>The danger is that more and more customers move their money to the bigger banks, making it more likely that the smaller banks collapse. Consumers would then have fewer banks to choose from and could end up paying higher prices for financial services or have less access to financial products. </p>
<p>This all points to tough choices ahead for governments and central banks. At the very least it looks likely that interest rates will need to come down to help protect banks, which may mean that we have to live with higher inflation for longer than most people were expecting.</p><img src="https://counter.theconversation.com/content/202634/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Konstantinos Lagos does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While most of the focus is on the here and now, here’s what the medium term could look like.Konstantinos Lagos, Senior Lecturer in Business and Economics, Sheffield Hallam UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1925032023-01-03T19:19:42Z2023-01-03T19:19:42ZAustralians pay $163 a month on average to store all the stuff we buy – how can we stop overconsuming?<figure><img src="https://images.theconversation.com/files/498394/original/file-20221201-20-mtf71p.jpg?ixlib=rb-1.1.0&rect=0%2C224%2C5875%2C3923&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>Many of us are drowning in “stuff”. To find space for all our possessions, we are paying off-site storage companies. Australians spend an average of A$163 per month on self-storage, one recent <a href="https://www.canstarblue.com.au/stores-services/self-storage/">survey</a> found.</p>
<p>The number one item stored in these facilities is furniture. Other items we cannot fit in our houses include appliances and electronics, hobby items, sports equipment, collectibles, memorabilia, books and photographs, cars and wine. </p>
<p>Around a quarter of customers <a href="https://www.canstarblue.com.au/stores-services/self-storage/">cannot remember</a> what is actually in their storage unit. Around 13% use them to hide their purchases from others.</p>
<p>The massive growth of the household storage industry is a sign of overconsumption. It’s a problem in many developed economies that’s doing increasing harm to the planet. </p>
<p>Unfortunately, the Earth does not have an off-site storage option. Curbing our desire to consume has to be the solution.</p>
<h2>Costs are mounting for us and the planet</h2>
<p>Australians <a href="https://www.canstar.com.au/savings-accounts/average-aussie-earn-save-owe/">owe, on average</a>, about $3,800 in credit card debt and a further $17,700 in personal debt (excluding property debt, which averages $565,880). </p>
<p>This year Australian shoppers were expected to spend <a href="https://www.roymorgan.com/findings/pre-christmas-sales-forecast-to-reach-63-9-billion-up-3-on-last-year">$63.9 billion</a> in the six weeks before Christmas, about $2,458 per person.</p>
<p>We waste a lot of what we buy. For example, each year Australia wastes <a href="https://www.fial.com.au/building-capability/feasibility-study-launch">7.6 million tonnes of food</a>, with consumers accounting for half of this waste. The food we throw out is worth between $2,000 and $2,500 per household – or up to $1,000 per person.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-best-before-food-labelling-is-not-best-for-the-planet-or-your-budget-189686">Why 'best before' food labelling is not best for the planet or your budget</a>
</strong>
</em>
</p>
<hr>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1595213071529959424"}"></div></p>
<p>That’s just the start of the wasteful spending – think of all those gym memberships, gift cards, clothes, appliances and furniture we’ve bought but don’t use.</p>
<p>In total, Australian households produce about <a href="https://www.thejunkmap.com.au/australian-waste-recycling-reuse-statistics/#:%7E:text=Australian%20waste%20statistics,Australia's%20waste%20goes%20to%20landfill.">12.4 million tonnes</a> of waste each year. That equates to roughly half a tonne per person.</p>
<p>We are not just spending beyond our personal means but also beyond what our planet can sustain.</p>
<p>Eventually, we will run out of places for all this waste to go.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/spending-too-much-money-tempted-by-sales-these-ways-to-hack-your-psychology-can-help-194821">Spending too much money? Tempted by sales? These ways to 'hack' your psychology can help</a>
</strong>
</em>
</p>
<hr>
<h2>I’m not a hoarder, but …</h2>
<p>People who own lots of stuff, or who collect things, are not necessarily hoarders, but may struggle to part with personal and household possessions. The reason can in part be explained by Belk’s concept of the <a href="https://www.jstor.org/stable/2489522?seq=1#page_scan_tab_contents">extended self</a>. This is when possessions become part of our identity and signal to others who we are and, importantly, who we want to be. </p>
<p>This is certainly the case for those who collect things. Our collections become a part of us and our life story. It can be difficult to disentangle ourselves from these possessions.</p>
<p>Some things we own may have symbolic value because they remind us of special people, places and events, such as gifts from a friend or souvenirs from a holiday. Possessions that still have potential financial or utilitarian value can also be hard to give up.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-and-how-retailers-turn-everyday-items-into-must-have-collectables-101672">Why and how retailers turn everyday items into 'must-have' collectables</a>
</strong>
</em>
</p>
<hr>
<h2>Why buy so much in the first place?</h2>
<p>Part of the problem is we are exposed to <a href="https://mumbrella.com.au/australians-watch-twice-as-many-ads-as-they-think-they-do-google-and-kantar-research-638697">thousands of advertisements</a> every day and a huge array of cheap products. The temptation to keep buying things can be too much for many people.</p>
<p>In their 2005 book <a href="https://www.allenandunwin.com/browse/book/Clive-Hamilton-and-Richard-Denniss-Affluenza-9781741146714">Affluenza</a>, Clive Hamilton and Richard Denniss describe the Western world as being in the grip of consumerism. Fast forward to 2022 and it appears we haven’t changed much. Behaving as though we have a chronic lack of stuff, we simply buy too many things we don’t need. </p>
<p>Many Australians live in small houses or <a href="https://www.commercialrealestate.com.au/news/boom-in-self-storage-units-as-more-australians-take-to-apartment-living-46133/">apartments that lack space</a> for all their things. Even those in large houses find they are overflowing with possessions but are loath to give up some of them. </p>
<p>The solution is we pay someone else to store our possessions – and we pay a lot. Self-storage in Australasia has grown into a <a href="https://selfstorage.org.au/">$1.5 billion</a> industry. </p>
<p>There are about <a href="https://www.cbre.com.au/insights/articles/the-rise-and-rise-of-australian-self-storage">2,000 self-storage facilities</a> across Australia and New Zealand. Some house hundreds of individual storage units.</p>
<p>Depending on the size, location and type of storage unit (for example, climate-controlled for wine collections), the costs can add up to thousands of dollars a year for some people.</p>
<figure class="align-center ">
<img alt="Man wheels a trolley of storage boxes into a rented storage unit." src="https://images.theconversation.com/files/503718/original/file-20230110-12-y3kds0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/503718/original/file-20230110-12-y3kds0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/503718/original/file-20230110-12-y3kds0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/503718/original/file-20230110-12-y3kds0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/503718/original/file-20230110-12-y3kds0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/503718/original/file-20230110-12-y3kds0.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/503718/original/file-20230110-12-y3kds0.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Self-storage businesses in Australasia have grown into a $1.5 billion industry.</span>
<span class="attribution"><span class="source">Shutterstock</span></span>
</figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-kids-should-not-have-lots-of-toys-and-what-to-do-if-yours-have-too-many-172611">Why kids should not have lots of toys (and what to do if yours have too many)</a>
</strong>
</em>
</p>
<hr>
<h2>What can we do about it?</h2>
<p>It is easy to be swept up in the shopping frenzies of Christmas and new year sales. We are “programmed” to spend by marketers and retailers who surround us with temptation in stores and online. </p>
<p>But there are things you can do to help counter the impulse to buy and reduce its impacts.</p>
<p>Make a list and set a budget before you head to the shops, and try to stick to it. Use cash instead of cards when you can. <a href="https://doi.org/10.1093/jcr/ucv056">Research</a> shows people feel the cost of paying more when using cash. Don’t shop on an empty stomach or when you are tired. </p>
<p>Where possible, shop locally and buy locally made items. It’s great for your local economy, and the planet benefits from fewer air miles.</p>
<p>Rather than products, consider gifts of experiences, which don’t involve accumulating “stuff”. Options include creative classes, entertainment, sports, or health and beauty services.</p>
<p>Look for products with less packaging or with biodegradable packaging. Buy loose products and choose refillable options where you can.</p>
<p>Ask yourself: do I really need to buy this? If I didn’t have a credit card, could I actually afford it today? </p>
<p>We can all use self-monitoring to improve our spending habits and reduce the environmental costs.</p><img src="https://counter.theconversation.com/content/192503/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australians buy so much stuff that they have run out of space in their homes for it all, so storage businesses are booming.Louise Grimmer, Associate Head Research and Senior Lecturer in Marketing, University of TasmaniaGary Mortimer, Professor of Marketing and Consumer Behaviour, Queensland University of TechnologyMartin Grimmer, Pro Vice-Chancellor and Professor of Marketing, University of TasmaniaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1949782022-11-21T13:16:17Z2022-11-21T13:16:17ZRetailers may see more red after Black Friday as consumers say they plan to pull back on spending – acting as if the US were already in a recession<figure><img src="https://images.theconversation.com/files/496301/original/file-20221120-13-zw5bwr.jpeg?ixlib=rb-1.1.0&rect=252%2C289%2C5978%2C3400&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Black Friday is one of the busiest shopping days of the year.</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/NerdWallet-Kimberly-Palmer-Holiday-Shopping-Savings/99625fc4be3f42569f32fc325cdf555b/photo?Query=black%20friday&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=48534&currentItemNo=46">AP Photo/Bebeto Matthews</a></span></figcaption></figure><p>Retailers are gearing up for another blockbuster holiday shopping season, but consumers burned by the <a href="https://fred.stlouisfed.org/series/CPIAUCSL">highest inflation in a generation</a> may have other ideas. </p>
<p>Industry groups are predicting another record year of retail sales, with the <a href="https://nrf.com/media-center/press-releases/nrf-predicts-healthy-holiday-sales-consumers-navigate-economic">National Retail Federation</a> forecasting a jump of 6% to 8% over the US$890 billion consumers spent online and in stores in November and December of 2021.</p>
<p>But Jeff Bezos, founder and chairman of the <a href="https://www.forbes.com/sites/laurendebter/2022/05/12/worlds-largest-retailers-2022-amazon-walmart-alibaba/?sh=57e262ae59e3">biggest retailer of them all</a>, seems to be anticipating a much less festive holiday for businesses. In November 2022, Amazon said <a href="https://www.nytimes.com/2022/11/14/technology/amazon-layoffs.html">it is laying off 10,000 workers</a>, one of <a href="https://www.forbes.com/sites/brianbushard/2022/11/17/cisco-reportedly-lays-off-over-4000-here-are-the-biggest-us-job-cuts-this-year/?sh=4c8b31711d2a">several big companies</a> announcing job cuts recently. Bezos even <a href="https://www.cnn.com/2022/11/14/economy/jeff-bezos-economy#:%7E:text=Bezos%20urged%20people%20to%20put,of%20a%20prolonged%20economic%20downturn.">cautioned consumers</a> to hold off on big purchases like cars, televisions and appliances to save in case of a recession in 2023. </p>
<p>Results from our new survey suggest consumers appear to be already taking Bezos’ advice, as a combination of <a href="https://www.bls.gov/news.release/cpi.nr0.htm">soaring consumer prices</a>, <a href="https://theconversation.com/a-brief-history-of-the-mortgage-from-its-roots-in-ancient-rome-to-the-english-dead-pledge-and-its-rebirth-in-america-193005">rising borrowing costs</a> and <a href="https://theconversation.com/fed-faces-twin-threats-of-recession-and-financial-crisis-as-its-inflation-fight-raises-risks-of-both-193704">growing odds of a recession</a> weighs on their wallets. And if our survey results do pan out, it may mean the <a href="https://www.washingtonpost.com/us-policy/2022/10/20/recession-inflation-white-house-fed/">recession everyone’s worried about</a> happens sooner than expected. </p>
<h2>Crisis behaviors</h2>
<p>We conducted our survey in mid-November, about a week before Black Friday, the historical start of the holiday shopping season. The day after Thanksgiving is known as Black Friday because it signals the period when retailers hope to sell enough goods so that their income statement shows “black,” or profit, for the year rather than “red,” which refers to losses.</p>
<p>We asked over 500 consumers a series of questions about their spending plans, concerns and priorities during this year’s holiday season. Participants were split evenly between men and women, and almost two-thirds had a household income of $70,000 or less. </p>
<p>Overall, the most alarming conclusion from our research is that consumers are reporting consumption behaviors <a href="https://doi.org/10.1016/j.jbusres.2011.06.008">typically exhibited during an economic crisis</a>, similar to <a href="https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/how-the-recession-has-changed-us-consumer-behavior">those observed in 2009 by consultancy McKinsey</a> during the Great Recession.</p>
<p>One data point stands out: An overwhelming 62% said they were concerned about their job security, while almost 35% indicated they were “very” or “extremely” worried about their financial situation.</p>
<p>Here are three behaviors we found in our survey that suggest consumers are behaving as if the U.S. economy is already in a recession. </p>
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<h2>1. Spending less</h2>
<p>Not surprisingly, cutting spending is the first thing consumers do during economic turmoil.</p>
<p>A study by <a href="https://www.mckinsey.com/industries/retail/our-insights/how-us-consumer-spending-is-changing">McKinsey</a> in early 2009 found that 90% of U.S. households cut spending due to the Great Recession, with 33% of consumers indicating a significant cut. </p>
<p>Similarly, respondents to our survey said they plan to spend, on average, around $700 this holiday season, <a href="https://nrf.com/research-insights/holiday-data-and-trends/winter-holidays">substantially lower</a> than the roughly $880 consumers spent during each of the past three seasons – including early in the pandemic in 2020.</p>
<p>About a third of our sample intended to spend “slightly” or “much” less than in 2021, while 35% said they would spend “about the same” – which from a retailer’s perspective means spending less because last year’s dollars don’t go as far today. The rest said they planned to spend a little or much more.</p>
<p>Inflation is one of the key reasons consumers say they are spending less. Almost 80% of respondents said they are either moderately, very or extremely concerned about the surge in prices, and 87% said those concerns would affect their holiday spending behavior, such as by buying gifts for fewer people or purchasing less expensive items. </p>
<p>Some of our respondents even said they were planning to make their own gifts or buy used goods, rather than shop for new items. The <a href="https://www.thredup.com/resale/">secondhand market has boomed </a> in the last few years, and many shoppers view this option as a way to combat inflationary pressures.</p>
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<h2>2. Planning ahead</h2>
<p>Another thing consumers do when they sense a troubled economy is they plan their purchases more carefully and <a href="https://doi.org/10.1016/j.jesp.2021.104189">maintain self-control</a> over spending. </p>
<p>Common strategies include spending more time searching for the best deals, adhering to strict shopping lists, prioritizing necessities and making purchases earlier to spread out their spending – all of which were mentioned by our survey respondents.</p>
<p>We may already be seeing signs of this last strategy. <a href="https://www.reuters.com/markets/us/us-retail-sales-beat-expectations-october-2022-11-16/">Retail sales for October</a> were up 1.3% from the previous month and up 8.3% from October 2021, which may reflect consumers’ early holiday shopping. If that is the case, this early shopping may result in slumping sales in December. </p>
<p>Also, purchasing early, aided by the <a href="https://www.cnbc.com/2022/11/19/follow-these-rules-from-experts-to-get-the-most-out-of-black-friday.html">plethora of steep discounts offered</a> well in advance of Black Friday, allows consumers to control their shopping behavior better and reduces the risk of impulse buying. Reduction of impulse buying <a href="https://doi.org/10.1016/j.jbusres.2011.06.00">is a strong indicator</a> that consumers are shopping like the economy is in recession. </p>
<p>In our survey, we found that over 50% of participants said that they would be using savings to cover the cost of holiday spending, with many stressing that they would pay with cash. Using cash as a primary form of payment <a href="https://doi.org/10.1002/bdm.1813">is the main tool consumers have</a> to control spending. </p>
<p>Only 15% of our respondents said that they would use buy-now-pay-later options, which to us is another sign that consumers are preferring cash over forms of credit that creates a new debt. </p>
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<h2>3. Hypersensitivity to price</h2>
<p>During economic crises, consumers <a href="https://doi.org/10.1016/j.jbusres.2011.06.008">become hypersensitive to prices</a>, which trump most other considerations in the minds of consumers.</p>
<p>A whopping 90% of our respondents confirmed that price is their major consideration when shopping during the holidays this year. Other elements of price sensitivity are free shipping, product value and the level of discount, if any. </p>
<p>The singular focus of consumers on price gives retailers a wide range of potential responses, including promoting house brands and private labels that are perceived as having greater value for money. In fact, according to the <a href="https://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/how-the-recession-has-changed-us-consumer-behavior">2009 McKinsey report</a>, one of the biggest shifts in consumer behavior during and after the 2008 recession was the switch in preference from high-priced premium brands to value brands that tend to have lower prices but still decent quality. During an economic slowdown, consumers <a href="https://doi.org/10.1016/j.jbusres.2011.06.008">typically stop buying brands</a> they are not strongly connected with or loyal to.</p>
<p>Consumers in our survey said buying brand names will be one of the least important influences on their purchases this season.</p>
<p>While economists debate whether a recession is coming, or even whether the U.S. is already in one, our data suggests consumers are beginning to behave like one is already here. That risks becoming a self-fulfilling prophecy as consumers tighten their belts.</p><img src="https://counter.theconversation.com/content/194978/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A new survey suggests three ways consumers are behaving like the US economy is in crisis, which may become a self-fulfilling prophecy.Ayalla A. Ruvio, Associate Professor of Marketing and the Director of the MS of Marketing Research program, Michigan State UniversityForrest Morgeson, Assistant Professor of Marketing, Michigan State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1891002022-09-28T12:33:43Z2022-09-28T12:33:43ZWe tend to underestimate our future expenses – here’s one way to prevent that<figure><img src="https://images.theconversation.com/files/484715/original/file-20220914-9158-53y9lt.jpg?ixlib=rb-1.1.0&rect=44%2C7%2C4860%2C3250&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Around 12 million Americans take out payday loans to help them pay for monthly expenses.</span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/photo/woman-holding-an-empty-wallet-she-hasnt-money-royalty-free-image/656909910?adppopup=true">andriano_cz/iStock / Getty Images Plus via Getty Images</a></span></figcaption></figure><p><em>The <a href="https://theconversation.com/us/topics/research-brief-83231">Research Brief</a> is a short take about interesting academic work.</em> </p>
<h2>The big idea</h2>
<p>When asked to estimate how much money they would spend in the future, people underpredicted the total amount by more than C$400 per month. However, when prompted to think about unexpected spending in addition to typical expenses, people made much more accurate predictions.</p>
<p>These are the main findings of a series of <a href="https://doi.org/10.1177%2F00222437211068025">studies and experiments that we conducted</a> and which have just been published in the <a href="https://journals.sagepub.com/home/mrj">Journal of Marketing Research</a>.</p>
<p>In our first study, we began by asking 187 members of a Canadian credit union to predict their weekly spending for the next five weeks. Then, at the end of each week, we asked them how much they actually spent. </p>
<p>For the first four weeks, people underpredicted their weekly spending by about $100 per week or $400 for the month. </p>
<p>In the study’s fifth and final week, we ran an experiment to see if we could improve people’s prediction accuracy.</p>
<p>Specifically, we randomly assigned participants to one of two groups. In group one, participants estimated their spending for the next week just as they had done in previous weeks. These folks once again significantly underpredicted their spending. </p>
<p>In group two, participants were asked to think of three reasons why their spending for the next week might be different than usual before making their estimate. This led them to make higher and much more accurate predictions – coming within just $7 of what they actually spent.</p>
<p>Importantly, participants in each group spent roughly the same amount of money that week, on average. The only difference between the two groups was whether they accurately predicted that amount.</p>
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<p>Next, we conducted nine experiments to better understand why people underpredict their spending and whether being prompted to think of unusual expenses helps improve accuracy. In all, over 5,800 people participated in these experiments, including a representative sample of U.S. residents.</p>
<p>These experiments revealed two important insights. </p>
<p>First, people primarily base their spending predictions on typical expenses like groceries, gasoline and rent. They usually fail to account for irregular – though still common – expenses like car repairs, last-minute concert tickets or one-off health care bills. This is what leads to underprediction.</p>
<p>Second, prompting people to think of irregular expenses in addition to typical expenses helps them to make more accurate spending predictions. In our studies, people did not factor in atypical expenses unless we asked them to do so.</p>
<h2>Why it matters</h2>
<p>Helping people improve the accuracy of their spending predictions could help them improve their financial well-being.</p>
<p>Underpredicting expenses can be costly. For example, 12 million Americans <a href="https://www.pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why">borrow a total of more than $7 billion</a> in payday loans each year because they can’t meet their monthly expenses. These loans typically have extremely high interest rates – <a href="https://www.pewtrusts.org/en/research-and-analysis/data-visualizations/2022/how-well-does-your-state-protect-payday-loan-borrowers">more than 250% in some states</a>. </p>
<p>Payday loans also come due in full so quickly that around three in four borrowers <a href="https://www.pewtrusts.org/en/research-and-analysis/reports/2012/07/19/who-borrows-where-they-borrow-and-why">end up borrowing again</a> to pay off the original loan.</p>
<p>If consumers could better anticipate how much money they will spend in the future, it might help motivate them to spend less and save more in the present. </p>
<p>In fact, one of our studies shows that our suggested prediction strategy <a href="https://doi.org/10.1177/0022243721106802">not only boosted spending estimates</a>, it also increased intentions to save.</p>
<h2>What’s next</h2>
<p>Members of our research team are currently investigating if, when and why underpredicting one’s expenses may be beneficial. For example, if a person sets an optimistically low budget and actively tracks their spending against it, does that help them reduce their spending? </p>
<p>We are also investigating whether people who work in the gig economy show a corresponding tendency to mispredict their future income.</p><img src="https://counter.theconversation.com/content/189100/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors received funding for this research from the Social Sciences and Humanities Research Council of Canada.</span></em></p><p class="fine-print"><em><span>David J. Hardisty receives funding from the Social Sciences and Humanities Research Council of Canada. </span></em></p><p class="fine-print"><em><span>Abigail Sussman and Marcel Lukas do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Understanding why people underpredict expenses could help them budget more accurately – and even encourage them to save more money.Ray Charles "Chuck" Howard, Assistant Professor of Marketing, Texas A&M UniversityAbigail Sussman, Professor of Marketing, University of ChicagoDavid J. Hardisty, Assistant Professor of Marketing & Behavioral Science, University of British ColumbiaMarcel Lukas, Lecturer in Banking and Finance, University of St AndrewsLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1885372022-08-14T04:51:09Z2022-08-14T04:51:09Z‘It’s important not to overreact’: top economists on how to fix inflation<figure><img src="https://images.theconversation.com/files/478696/original/file-20220811-23-37tbw1.png?ixlib=rb-1.1.0&rect=347%2C0%2C3293%2C1994&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Wes Mountain/The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span></figcaption></figure><p>Australia’s top economists are divided about how to tackle ballooning inflation of <a href="https://theconversation.com/inflation-hasnt-been-higher-for-32-years-what-now-187452">6.1%</a> that’s forecast to climb to a three-decade high of <a href="https://theconversation.com/the-chalmers-graphs-7-75-inflation-plunging-real-wages-weak-growth-187851">7.75%</a> by the end of the year.</p>
<p>Three of the 48 leading economists surveyed by the Economic Society of Australia and The Conversation say Australia should be able to tolerate an inflation rate of 8% or higher. </p>
<p>Seven expect inflation to fall back to an acceptable level without the need for any further action other than Reserve Bank adjustments to interest rates.</p>
<p>That view was lent weight by news from the United States last week that annual inflation slid from 9.1% to 8.5% in July, after inflation of <a href="https://twitter.com/WatcherGuru/status/1557378804481507328">zero</a> over the month.</p>
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<p>Asked how high an inflation rate Australia should be prepared to tolerate, most nominated a rate at the top of or above the Reserve Bank’s 2-3% target band. </p>
<p>Twelve nominated a rate well above the target band.</p>
<p>Ten said the step-up in inflation was primarily caused by events overseas not within Australia’s power to control. </p>
<p>The economists polled are recognised as leaders in their fields, including economic modelling and public policy. Among them are former Reserve Bank, Treasury and OECD officials, and a former member of the Reserve Bank board.</p>
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<h2>Beyond rate rises, what could be done?</h2>
<p>There are three kinds of actions governments can take to bring consumer price inflation down</p>
<ul>
<li><p>actions that suppress consumer spending (“<a href="https://www.investopedia.com/terms/d/demand.asp">demand</a>”)</p></li>
<li><p>actions that boost the supply of goods and services (“<a href="https://www.investopedia.com/terms/q/quantitysupplied.asp">supply</a>”)</p></li>
<li><p>actions that directly restrain prices</p></li>
</ul>
<p>Invited to choose from a <a href="https://cdn.theconversation.com/static_files/files/2241/August_2022_National_Economic_Poll_Inflation_-_Google_Forms.pdf">menu</a> of options, and add options to the menu, the panel placed slightly greater weight on measures to restrain demand than measures to boost supply, and greater weight on both than measures to directly restrain prices.</p>
<p>The most popular measure, backed by 37% of those surveyed, was winding back government spending. Almost as popular, backed by 33%, was a super-profits tax on fossil fuel producers, with the proceeds used to reduce cost of services.</p>
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<p>Another tax measure – increased income taxes with the proceeds used to reduce cost of services – was backed by 17%. Two of those surveyed wanted to abandon the legislated <a href="https://theconversation.com/stand-by-for-the-oddly-designed-stage-3-tax-cut-that-will-send-middle-earners-backwards-and-give-high-earners-thousands-182751">Stage 3 tax cuts</a> for higher earners due to take effect in 2024.</p>
<p>But several of those who advocated winding back government spending or boosting tax did so without enthusiasm, believing that while the government should be prepared to assist the Reserve Bank in suppressing consumer demand, suppressing demand wouldn’t tackle the main reasons prices were climbing.</p>
<h2>The risks of doing too much</h2>
<p>The Australian National University’s Robert Breunig said much of the inflationary pressure had come from things such as oil prices that were beyond the power of Australians to influence, making it “important not to overreact”.</p>
<p>Melbourne University banking specialist Kevin Davis said what appeared to be high inflation might actually mainly be a series of short-term supply-induced price rises, making it hard to see how choking demand could do much good. </p>
<p>Australia’s current <a href="https://theconversation.com/3-5-unemployment-australias-jobless-rate-at-its-lowest-since-1974-186917">ultra-low unemployment rate</a> was an achievement that should be celebrated, rather than put at risk without a good reason. </p>
<p>If high inflation did stay for a while and spread to wages, a welcome side effect would be more affordable housing.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-rba-is-hiking-rates-because-its-scared-it-cant-contain-inflation-188011">The RBA is hiking rates because it's scared it can't contain inflation</a>
</strong>
</em>
</p>
<hr>
<p>Curtin University macroeconomist Harry Bloch made the point that while measures to suppress demand in Europe and the United States would indeed have an impact on global energy and food prices, that wasn’t true of measures to suppress demand in Australia, which is too small to influence global prices.</p>
<p>Consulting economist Rana Roy disagreed, saying the fact that high inflation wasn’t primarily caused by excess demand was no reason not to treat it by containing demand. Whatever the cause, containing demand would contain inflation.</p>
<p>Mala Raghavan from the University of Tasmania and Leonora Risse from RMIT University suggested winding back or delaying spending in two areas where it was clear the government was contributing to domestically-driven higher prices: subsidies for, and spending on, construction and infrastructure.</p>
<h2>Withholding gas, boosting immigration</h2>
<p>The most popular ideas for boosting the supply of goods and services to take pressure off inflation were reserving a portion of Australian gas and other commodities for domestic use, and boosting immigration, supported by 33% and 29% of the economists surveyed.</p>
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<p>Reserving a portion of Australian east coast gas for use in Australia would help decouple Australia’s east coast gas prices from <a href="https://theconversation.com/why-did-gas-prices-go-from-10-a-gigajoule-to-800-a-gigajoule-an-expert-on-the-energy-crisis-engulfing-australia-184304">sky-high international prices</a> as has happened in Western Australia, which reserves 15% of its gas for domestic use.</p>
<p>Boosting immigration would take pressure off costs by easing labour shortages.</p>
<p>Federation University’s Margaret McKenzie suggested investigating blockages in supply chains and offering diplomatic and industry support to bust them. </p>
<h2>Subsidising childcare, subsidising fuel</h2>
<p>The most popular idea for directly restraining prices was increased subsidies for childcare, supported by 25% of the economists surveyed, several of whom suggested it could also boost the supply of workers who had previously been prevented from working by unaffordable childcare.</p>
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<p>Other ideas that would directly restrain some prices included pushing for below-inflation wage rises in the Fair Work Commission and extending the six-month cut in fuel excise <a href="https://images.theconversation.com/files/478555/original/file-20220810-16-x8gzjd.JPG">due to expire in September</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inflation-hasnt-been-higher-for-32-years-what-now-187452">Inflation hasn't been higher for 32 years. What now?</a>
</strong>
</em>
</p>
<hr>
<p>Former Reserve Bank board member Warwick McKibbin warned against pursuing low inflation for its own sake, saying when the economy was weak or in recession a high rate of inflation could be more easily justified than at other times. </p>
<p>He said the Reserve Bank should stop targeting inflation and instead target the rate of growth in national spending, an idea he will be putting to the independent <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/review-reserve-bank">review</a> of its operations.</p>
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<p><em>Detailed responses:</em></p>
<p><iframe id="tc-infographic-727" class="tc-infographic" height="400px" src="https://cdn.theconversation.com/infographics/727/31a707c4f4bdf3af0aebb2c2d4fa43148f40f58e/site/index.html" width="100%" style="border: none" frameborder="0"></iframe></p><img src="https://counter.theconversation.com/content/188537/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Asked how high an inflation rate Australia should prepare to tolerate, three of the 48 economists nominated 8% or higher. Seven expected inflation to fall without the need for further action.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1732452021-12-26T20:28:27Z2021-12-26T20:28:27ZLike songs, the best graphs tell stories. Here are my 10 favourites from 2021<figure><img src="https://images.theconversation.com/files/436251/original/file-20211208-141213-1demhsp.png?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">sheetmusicdirect</span></span></figcaption></figure><p>“One of the first things you have to decide on with a musical is why should there be songs.”</p>
<p>The person speaking is <a href="https://www.nytimes.com/video/players/offsite/index.html?videoId=1248069062358">Stephen Sondheim</a>, the writer of some of the best songs for musicals in the 20th century, who died in November aged 91.</p>
<blockquote>
<p>You can put songs in any story, but what I think you have to look for is, why are songs necessary to this story? If it’s unnecessary, then the show generally turns out to be not very good.</p>
</blockquote>
<p>I’m no <a href="https://www.abc.net.au/news/2021-11-27/stephen-sondheim-dies/100655760">Sondheim</a>, but as an editor I won’t put a graph into any story unless it is absolutely necessary to tell the story.</p>
<p>When I do, the picture can be worth at least the 800 words that accompany it.</p>
<p>So here are my 10 favourites from the business and economy stories I edited for The Conversation in 2021.</p>
<h2>Some of the best graphs remove doubt</h2>
<p>This graph, from the Bureau of Statistics, leaves no doubt about what happens to consumer spending when lockdowns end.</p>
<p>Released in November, with the national accounts, it uses <a href="https://theconversation.com/sure-the-national-accounts-show-gdp-going-backwards-but-look-at-whats-to-come-172950">bank account data</a> to show what happened to spending on clothes, furnishings, recreation, transport and restaurants and hotels. </p>
<hr>
<p><strong>Selected Victorian spending data</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/434925/original/file-20211201-15-38vvlr.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Aggregated bank data. Index for May 2020 = 100.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/articles/impact-lockdowns-household-consumption-insights-alternative-data-sources">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>While the effect is clear, and beautifully illustrated, it can be interpreted in two ways. One is that lockdowns are to be avoided because they suppress ordinary life. </p>
<p>The other is that Victoria’s long lockdown was caused by the failure of the NSW government to lockdown <a href="https://www.abc.net.au/news/2021-12-02/policy-failures-caused-the-historical-decline-in-economic-growth/100664322">quickly enough</a> and hard enough as the Delta variant spread, meaning lockdowns are to be embraced, and quickly. </p>
<p>Another graph that removed doubt is this one showing what Australia’s July 2012 to July 2014 carbon price did to <a href="https://theconversation.com/vital-signs-marketing-is-getting-in-the-way-of-markets-that-could-get-us-to-net-zero-171602">greenhouse gas emissions</a>, excluding those related to land use and forestry that are subject to government directives.</p>
<hr>
<p><strong>Australian emissions excluding land use, land-use change and forestry</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=285&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=285&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=285&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=358&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=358&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431464/original/file-20211111-27-mha6a7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=358&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Million tonnes of carbon dioxide equivalent per annum, updated quarterly.</span>
<span class="attribution"><a class="source" href="https://www.climatecouncil.org.au/wp-content/uploads/2019/04/Climate-Cuts-Cover-Ups-and-Censorship.pdf">Climate Council, Department of Industry</a></span>
</figcaption>
</figure>
<hr>
<p>Whatever else is said about the carbon price, its effect on emissions is clear. </p>
<p>Also clear, and enormous when you look at it, is what our current system of adjusting JobSeeker only in line with the consumer price index will do to it compared to the age pension, which is adjusted in line with wages.</p>
<p>The projections in this graph derive from the mid-year intergenerational report which looks forward 40 years. </p>
<p>After 40 years – unless there’s an extra increase, and one wasn’t allowed for in the intergenerational report – JobSeeker will be a <a href="https://theconversation.com/when-covid-is-behind-us-australians-are-going-to-have-to-pay-more-tax-164707">mere fraction</a> of the pension.</p>
<hr>
<p><strong>JobSeeker and age pension as projected in intergenerational report</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/412051/original/file-20210720-15-jrjreu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Payment for a single person, dollars per fortnight. JobSeeker, pension indexed to intergenerational report inflation projections.</span>
</figcaption>
</figure>
<hr>
<p>Also shrinking, with unfortunate consequences for <a href="https://theconversation.com/paying-off-a-home-loan-used-to-be-easier-than-it-looked-its-now-harder-heres-why-161873">Australians with mortgages</a> and Australians trying to get them, has been wage growth.</p>
<p>The government has been forecasting a return to the 3-4% wage growth we once had in <a href="https://theconversation.com/its-the-budget-cash-splash-that-reaches-back-in-time-114188">every budget</a> since 2012, save for the last two.</p>
<p>Right now public sector wages growth, which used to lead private sector growth, is well below 2%. Private sector growth has started to climb, but it is well short of where it was.</p>
<hr>
<p><strong>Wage price index</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=247&fit=crop&dpr=1 600w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=247&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=247&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=310&fit=crop&dpr=1 754w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=310&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/436258/original/file-20211208-25-idgl6u.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=310&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Annual seasonally adjusted growth in total hourly rates of pay excluding bonuses.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/economy/price-indexes-and-inflation/wage-price-index-australia/sep-2021">ABS</a></span>
</figcaption>
</figure>
<hr>
<p>Up until the year 2000, buying a home cost between two and three times household after tax-income. </p>
<p>Then, after the headline rate of capital gains tax was halved and investors dived into the market, prices climbed to between three and four times income.</p>
<p>Six years ago they jumped again to between four and five times income, and in 2021 they climbed once again to more than <a href="https://theconversation.com/paying-off-a-home-loan-used-to-be-easier-than-it-looked-its-now-harder-heres-why-161873">six times</a> disposable income.</p>
<hr>
<p><strong>Home prices as proportion of household disposable income</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=240&fit=crop&dpr=1 600w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=240&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=240&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=302&fit=crop&dpr=1 754w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=302&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=302&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Household disposable income after tax, before the deduction of interest payments, including income of unincorporated enterprises.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf">Core Logic, ABS, RBA</a></span>
</figcaption>
</figure>
<hr>
<p>While low wage growth should make it harder to pay off a loan than it used to be, just at the moment ultra-low interest rates are making it <a href="https://theconversation.com/as-home-prices-soar-beyond-reach-we-have-a-government-inquiry-almost-designed-not-to-tell-us-why-168959">easier to service</a> mortgages than it has been in decades.</p>
<p>But what the Reserve Bank calls <a href="https://theconversation.com/as-home-prices-soar-beyond-reach-we-have-a-government-inquiry-almost-designed-not-to-tell-us-why-168959">housing accessibility</a> (to distinguish it from housing affordability) is much worse.</p>
<p>Astounding price growth and a decade of weak wages growth have pushed up the cost of an average first home deposit from 70% of income to more than 80%.</p>
<hr>
<p><strong>Average first home buyer deposit</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=238&fit=crop&dpr=1 600w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=238&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=238&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=299&fit=crop&dpr=1 754w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=299&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/425847/original/file-20211012-26-1kbvg9c.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=299&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Owner-occupier; estimated as a share of average annual household disposable income using average first home buyer commitment size and assuming 20 per cent deposit. Seasonally adjusted and break-adjusted.</span>
<span class="attribution"><a class="source" href="https://www.rba.gov.au/publications/submissions/housing-and-housing-finance/inquiry-into-housing-affordability-and-supply-in-australia/pdf/inquiry-into-housing-affordability-and-supply-in-australia.pdf">RBA, ABS</a></span>
</figcaption>
</figure>
<hr>
<h2>Other graphs surprise</h2>
<p>If we start building more houses, it stands to reason that we will get more houses.</p>
<p>That’ll doubtless be the case eventually, but if you are expecting it to happen any time soon, you will be disappointed.</p>
<p>In the space of a year, the number of Australian houses (not apartments) under construction has jumped from 56,060 to 88,445 — the most ever. </p>
<p>But bizarrely, as has been the case for half a century, the number of houses completed each quarter has <a href="https://theconversation.com/building-more-houses-quickly-is-harder-than-it-looks-australia-hasnt-done-it-in-decades-170223">barely moved</a>. </p>
<p>It’s as if homebuilding can’t scale up. </p>
<hr>
<p><strong>Houses under construction, houses completed, quarterly</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=321&fit=crop&dpr=1 600w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=321&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=321&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=404&fit=crop&dpr=1 754w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=404&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/439030/original/file-20211227-117041-xttokw.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=404&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/industry/building-and-construction/building-activity-australia/latest-release#data-download">Australian Bureau of Statistics</a></span>
</figcaption>
</figure>
<hr>
<p>Another surprising graph shows the disconnect between crime and our desire to lock people up.</p>
<p>Nonviolent crime has plummeted. Between 2000 and 2020, armed robberies fell from 9,480 to 4,746, unarmed robberies fell from 13,850 to 4,666, and motor vehicle vehicle theft fell from 138,915 to 48,056.</p>
<p>Violent crime is falling too. The Productivity Commission believes homicide gives the best read on crime because almost all homicides are reported. </p>
<p>It found that while homicide has plummeted, imprisonment has <a href="https://theconversation.com/more-prison-time-for-less-crime-our-swelling-prisons-are-costing-us-dearly-170792">doubled</a>. </p>
<hr>
<p><strong>Homicides and imprisonment per 100,000 Australians</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=314&fit=crop&dpr=1 600w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=314&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=314&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=395&fit=crop&dpr=1 754w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=395&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/428992/original/file-20211028-27-1u1evql.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=395&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Number of prisoners per 100,000 population aged 18 years and over, number of homicides per 100,000 persons.</span>
<span class="attribution"><a class="source" href="https://www.pc.gov.au/research/completed/prison-dilemma">Productivity Commission</a></span>
</figcaption>
</figure>
<hr>
<p>Another surprise is that the “<a href="https://theconversation.com/australias-great-resignation-is-a-myth-we-are-changing-jobs-less-than-ever-before-170784">great resignation</a>” – the jump in the proportion of workers quitting their jobs in the United States – hasn’t been seen here.</p>
<p>It seems to be a real phenomenon in the US, where low vaccination rates have made public-facing jobs dangerous, but not here where resignations have been falling for decades.</p>
<p>Australians seem increasingly resigned to staying in the jobs they are in.</p>
<hr>
<p><strong>Proportion of Australians who changed jobs in the past year</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/435827/original/file-20211206-23-1h2uj0y.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/labour/employment-and-unemployment/job-mobility/feb-2021">Australian Bureau of Statistics</a></span>
</figcaption>
</figure>
<hr>
<h2>The very best graphs tell an entire story</h2>
<p>When COVID took off in the first half of 2020 there was concern that many more people would die as a result of COVID than were recorded as COVID deaths.</p>
<p>Some of these “<a href="https://www.economist.com/graphic-detail/coronavirus-excess-deaths-tracker">excess deaths</a>” would be COVID deaths that were not classified as COVID; some would be extra deaths caused by measures such as lockdowns; and some would be caused by crowded medical facilities turning away patients. </p>
<p>Worldwide, there have been <a href="https://ourworldindata.org/excess-mortality-covid">millions</a> of excess deaths.</p>
<p>But not in Australia. In several months Australia’s excess deaths have been <a href="https://www.economist.com/graphic-detail/coronavirus-excess-deaths-tracker">negative</a>, with more deaths avoided than usual, in part because better health practices prevented deaths from the flu.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/you-cant-fix-it-if-you-cant-see-it-how-the-abs-became-our-secret-weapon-156637">You can't fix it if you can't see it: how the ABS became our secret weapon</a>
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</p>
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<p>To track excess deaths the Bureau of Statistics has <a href="https://www.abs.gov.au/statistics/health/causes-death/provisional-mortality-statistics/jan-2020-aug-2021">graphed</a> the number of doctor certified deaths actually recorded each week against the number that would be expected for that week given the average over the past five years.</p>
<hr>
<p><strong>Weekly deaths vs 2015-2019 average</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=214&fit=crop&dpr=1 600w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=214&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=214&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=269&fit=crop&dpr=1 754w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=269&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/439022/original/file-20211226-23072-1tsjblq.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=269&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Doctor certified deaths.</span>
<span class="attribution"><a class="source" href="https://www.abs.gov.au/statistics/health/causes-death/provisional-mortality-statistics/jan-2020-aug-2021">ABS Provisional Mortality Statistics</a></span>
</figcaption>
</figure>
<hr>
<p>What is apparent is that in most weeks Australian deaths have been little more than would be expected given five-year averages, and in many weeks less.</p>
<p>If COVID has been killing people in ways we can’t see, the effect has been offset by the measures we have taken to combat COVID – saving lives in other ways we can’t see.</p>
<p>It’s an important finding, not at all foreseeable, and illustrated beautifully.</p><img src="https://counter.theconversation.com/content/173245/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Conversation’s best graphs have removed doubt, surprised, and told entire stories.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1690032021-09-29T20:09:07Z2021-09-29T20:09:07ZWhat happened during the last government shutdown: 4 essential reads<figure><img src="https://images.theconversation.com/files/423932/original/file-20210929-66205-8fwr30.jpg?ixlib=rb-1.1.0&rect=8%2C22%2C2986%2C1899&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Red sky at night, federal workers take fright? </span> <span class="attribution"><a class="source" href="https://www.gettyimages.com/detail/news-photo/the-early-morning-sun-lights-up-the-sky-behind-the-u-s-news-photo/72581249?adppopup=true">Mark Wilson/Getty Images</a></span></figcaption></figure><p>The U.S. is (once again) staring down the barrel of a <a href="https://www.crfb.org/papers/qa-everything-you-should-know-about-government-shutdowns">government shutdown</a>. </p>
<p>Barring progress on a spending bill to fund government agencies past Sept. 30, 2021 – and <a href="https://www.nytimes.com/2021/09/29/us/politics/debt-limit-spending-bill.html">Democrats are busying themselves</a> trying to get such a measure through Congress – federal workers could find themselves being sent home, or asked not to come in.</p>
<p>For how long is uncertain. Over the last few decades, the length of government shutdowns has crept up. The most recent one, which started on Dec. 22, 2018, <a href="https://www.reuters.com/world/us/what-happens-when-us-federal-government-shuts-down-2021-09-27/">lasted 35 days</a>, marking the longest shutdown to date.</p>
<p>During that period, The Conversation ran a series of articles that helped explain what was at stake, who suffers and why. Below are some insights gleaned by experts from previous government shutdowns that may give a clue as to what the U.S. can expect should the lights go off at midnight on Sept 30.</p>
<h2>Who is affected</h2>
<p>The federal workforce currently <a href="https://sgp.fas.org/crs/misc/R43590.pdf">comprises around 2.1 million civilian employees</a>. In the shutdown of 2018-2019, some 800,000 workers were affected by the government shutdown. Of those, around 380,000 were furloughed, meaning they could not work or get paid, while the rest worked without pay for the duration of the shutdown.</p>
<p><a href="https://www.uab.edu/cas/pspa/people/faculty/nevbahar-ertas">Nevbahar Ertas at the University of Alabama at Birmingham</a> <a href="https://theconversation.com/who-are-the-federal-workers-affected-by-the-shutdown-5-questions-answered-109631">broke down those numbers</a> for The Conversation. She explained that the vast majority of federal employees work and live outside of Washington, D.C. The work they perform ranges from protecting waterways and ensuring food safety to investigating crime. </p>
<p>In fact, federal workers “are employed in over 300 different occupations,” Ertas notes. Salaries vary along with the roles, but, as of 2017, the average federal salary was US$69,344.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/who-are-the-federal-workers-affected-by-the-shutdown-5-questions-answered-109631">Who are the federal workers affected by the shutdown? 5 questions answered</a>
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</em>
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<hr>
<h2>What happens to consumer spending</h2>
<p>One short-term consequence of not paying so many people is that it provides a short-term brake on consumer spending, according to Scott Baker, <a href="https://www.kellogg.northwestern.edu/faculty/directory/baker_scott_r.aspx">a professor of finance at Northwestern University</a>.</p>
<p>Analyzing the <a href="https://theconversation.com/whats-the-economic-impact-of-a-government-shutdown-109182">impact of the 2013 government shutdown</a> – which saw some federal workers furloughed for more than two weeks – Baker found that it led to an immediate 10% decline in average spending for households in which at least one member worked for an affected federal agency. For households with a member furloughed in the shutdown, the drop in consumer spending almost doubled.</p>
<p>This is a problem not just for federal employees and their families. As Baker explains, it has a ripple effect on local businesses. One area of particular concerns is restaurants. When people tighten their purse strings, eating out is one of the first things to go. Given the challenging times the restaurant trade has had during the pandemic, any additional disruption would come as a further blow. </p>
<p>“In addition, the longer the shutdown lasts, the worse its impact,” Baker notes.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/whats-the-economic-impact-of-a-government-shutdown-109182">What's the economic impact of a government shutdown?</a>
</strong>
</em>
</p>
<hr>
<h2>The impact on health and safety</h2>
<p>Shutdowns don’t affect only the financial well-being of the U.S. </p>
<p>As <a href="https://www.american.edu/spa/faculty/mw4303a.cfm">Morten Wendelbo at American University School of Public Affairs</a> writes, <a href="https://theconversation.com/the-shutdown-will-harm-the-health-and-safety-of-americans-even-after-its-long-over-109843">disruption to business-as-usual can harm</a> the government’s ability to provide health services and protect the public from disasters.</p>
<p>This manifested in a number of ways during the 2018-19 shutdown. Disaster preparedness was one of the areas affected. The Federal Emergency Management Agency was forced to cease working on a several projects, and even those that continued were impacted by staff shortages as a result of federal furloughs. Among those temporarily sent home in that shutdown were hurricane modelers from the National Oceanic and Atmospheric Administration. Similarly, government employees tasked with managing forests prone to fires were affected by the shutdown. </p>
<p>“First responders and emergency experts use the off season to prepare for the next disaster season, but reports show that the prolonged shutdown is preventing some of this preparation, such as training for essential staff and forecasters,” Wendelbo explains.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-shutdown-will-harm-the-health-and-safety-of-americans-even-after-its-long-over-109843">The shutdown will harm the health and safety of Americans, even after it's long over</a>
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</em>
</p>
<hr>
<h2>Science suffers</h2>
<p>“When the U.S. government shuts down, much of the science that it supports is not spared,” writes <a href="https://www.chemistry.msu.edu/faculty-research/faculty-members/angela-k-wilson/">Angela Wilson of Michigan State University</a>. </p>
<p>She should know. As the head of the National Science Foundation’s Division of Chemistry, Wilson endured two shutdowns: “The 1,800 NSF staff would be sent home, without access to email and without even the option to work voluntarily, until eventually an end to the shutdown was negotiated.”</p>
<p>And it wasn’t just her agency. Scientists at the Fish and Wildlife Service, the National Parks Service, the Environmental Protection Agency and the U.S. Geological Survey, among others, are also typically furloughed in government shutdowns. Such enforced periods out of work can be particularly disruptive for scientists who rely on critical windows for their work. </p>
<p>“If something happens only once a year and the moment is now – such as the pollination window for some drought-resistant plants – a researcher will miss out and must wait another year,” <a href="https://theconversation.com/science-gets-shut-down-right-along-with-the-federal-government-109690">Wilson explains</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/science-gets-shut-down-right-along-with-the-federal-government-109690">Science gets shut down right along with the federal government</a>
</strong>
</em>
</p>
<hr>
<img src="https://counter.theconversation.com/content/169003/count.gif" alt="The Conversation" width="1" height="1" />
Congress is working on a spending bill to avert another government shutdown. Scholars explain what’s in store if they fail.Matt Williams, Senior International EditorLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1506052020-12-08T16:17:30Z2020-12-08T16:17:30ZDress pants optional: How retailers are dealing with changing consumer habits<figure><img src="https://images.theconversation.com/files/373343/original/file-20201207-15-7t09zl.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4898%2C3226&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">To adapt to changing consumer habits during COVID-19, small retailers in Canada have offered services like home delivery and curbside pickup. They may need to continue those practices in the post-pandemic era.</span> <span class="attribution"><span class="source">(Maarten van den Heuvel/Unsplash)</span></span></figcaption></figure><p>The COVID-19 pandemic is disrupting consumer habits. Canadians developed an intense interest in baking in the early days of the crisis, leading to <a href="https://www.cbc.ca/news/canada/newfoundland-labrador/yeast-sharpes-st-philips-1.5542344">flour and yeast shortages</a>. They <a href="https://www.jpmorgan.com/solutions/cib/research/covid-spending-habits">bought less sunscreen</a> in the absence of tropical vacations, and they are dressing down <a href="https://www.cbc.ca/news/canada/newfoundland-labrador/covid-19-fashion-menswear-1.5767738">in sweatpants</a> while working over Zoom.</p>
<p>Consumer habits form around regular patterns of daily activity such as commuting, working and recreation. As these patterns change, so do consumer habits. </p>
<figure class="align-center ">
<img alt="An empty subway car" src="https://images.theconversation.com/files/373196/original/file-20201206-23-1f3hupm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/373196/original/file-20201206-23-1f3hupm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/373196/original/file-20201206-23-1f3hupm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/373196/original/file-20201206-23-1f3hupm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/373196/original/file-20201206-23-1f3hupm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/373196/original/file-20201206-23-1f3hupm.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/373196/original/file-20201206-23-1f3hupm.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">When people stop commuting, their spending habits change.</span>
<span class="attribution"><span class="source">(Manny Fortin/Unsplash)</span></span>
</figcaption>
</figure>
<p>These changing habits are having a significant impact on independent, Main Street retailers, particularly during the holiday season. To adapt in 2021 and beyond, retailers need to strengthen their ability to connect with existing customers and capture new customers as habits change — perhaps permanently.</p>
<p>There is no doubt that COVID-19 is putting a great deal of stress on many small Canadian retailers. Forced shutdowns were a major challenge <a href="https://www.cbc.ca/news/canada/coronavirus-covid19-march23-canada-world-1.5506430">in March</a> at the start of the pandemic, and then again for certain regions, including Toronto and Peel in Ontario, <a href="https://www.cbc.ca/news/canada/toronto/open-closed-peel-toronto-lockdown-covid19-1.5812048">since November</a>. </p>
<p>As the crisis hit, I started interviewing independent retailers to understand the challenges they were facing in an <a href="https://resilience.degroote.mcmaster.ca/home/perception-and-action-in-a-shifting-retail-world/">ongoing study</a>.</p>
<h2>Consumers developing new habits</h2>
<p>Habits are repetitive consumer behaviours that are tied to commuting patterns, hobbies, brand loyalties and preferences, as well as social behaviour. COVID-19 has caused significant disruption to consumer habits because people are working from home, restricting social behaviour and travel, and in general reflecting on what is most important to them. </p>
<p>These disruptions to consumer habits present both risk and opportunity for retailers. On the one hand, retailers are dealing with long-time customers whose habits are changing. For example, one comic book retailer in a medium-sized southwestern Ontario city noted that some of its comic book collectors suddenly stopped collecting — the result of personal reflection, perhaps, or shifting priorities. </p>
<p>Others had doubled down, spending more money on comics they might have otherwise spent on trips to a <a href="https://www.theverge.com/2020/4/17/21225299/san-diego-comic-con-canceled-dates-july-2021-refunds">Comic-Con conference</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/comic-con-home-virtual-comics-event-declared-a-failure-by-industry-critics-but-fans-loved-it-143801">Comic-Con@Home: Virtual comics event declared a failure by industry critics, but fans loved it</a>
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</em>
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<hr>
<p>These changing habits are not isolated to comic books. A Dalhousie University study found that 4.2 million more Canadians are ordering food online than they were before the pandemic and <a href="https://www.thespec.com/opinion/contributors/2020/12/02/canadas-food-industry-keeps-adapting-to-changing-pandemic-times.html">this trend</a> isn’t expected to dissipate.</p>
<p>More generally, customers are picking up new habits such as baking and or other leisure-time hobbies in the absence of other options, like going to the movies. These are all changes that influence consumption habits. </p>
<h2>Stay close to customers, double down on service</h2>
<p>For retailers seeking to benefit from these new habits, this is a time to stay very close to customers and double down on service and engagement. Be inquisitive and thoughtful about how to reach existing and new customers in creative ways. </p>
<p>This might seem counter-intuitive in a time of social distancing, Plexiglas and face masks. However, retailers have demonstrated tremendous creativity in maintaining and creating connection with customers. They’re reaching customers using social media, including Instagram and Facebook. </p>
<p>One women’s fashion retailer in a small southwestern Ontario city typically holds fashion shows to highlight new seasons of clothing. With COVID-19 restrictions, the show shifted online. </p>
<p>Others are using Facebook Live or Zoom calls to show inventory to customers, either en masse or through personal “tours.” Well-established retailers are even using email and telephone to reach loyal customers. </p>
<p>In delivering products and services, many local retailers have sought to add value for stressed-out customers. From jewellers to kitchen supply stores, retailers hand-delivered products to customers, strengthening relationships in the process. </p>
<p>At physical locations, retailers offered curbside pickup and appointments to show products to customers who were nervous about COVID-19 or at high risk. Providing a safe environment for customers has been the top priority for most retailers in my study so far.</p>
<figure class="align-center ">
<img alt="A tailor wearing a face shield fits a blazer for a customer wearing a mask." src="https://images.theconversation.com/files/373345/original/file-20201207-21-1aeh0h7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/373345/original/file-20201207-21-1aeh0h7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=444&fit=crop&dpr=1 600w, https://images.theconversation.com/files/373345/original/file-20201207-21-1aeh0h7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=444&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/373345/original/file-20201207-21-1aeh0h7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=444&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/373345/original/file-20201207-21-1aeh0h7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=558&fit=crop&dpr=1 754w, https://images.theconversation.com/files/373345/original/file-20201207-21-1aeh0h7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=558&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/373345/original/file-20201207-21-1aeh0h7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=558&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Head tailor Soheil Khorrami, left, demonstrates a safe way to fit a blazer for a customer at Tom’s Place in Kensington Market in Toronto in June 2020.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Nathan Denette</span></span>
</figcaption>
</figure>
<h2>Keep online presence focused on Main Street</h2>
<p>There has been a big move towards online shopping during this pandemic, <a href="https://www.washingtonpost.com/technology/2020/06/22/small-business-tech-pandemic/">even among smaller retailers</a>. It’s expected that this <a href="https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/a-global-view-of-how-consumer-behavior-is-changing-amid-covid-19">online focus will remain</a> after COVID-19. </p>
<p>However, while an independent retailer’s online presence is critical, online options risk blurring the line between Main Street shops and behemoths like Amazon. Customers who shop at smaller retailers are different, <a href="https://www.cbc.ca/news/business/shop-local-covid-19-pandemic-small-businesses-1.5675070">looking to shop local and benefit from personal service</a>, and so independent retailers need to keep the focus on these value propositions, using the internet as a support.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1331000730719834121"}"></div></p>
<p>This means recognizing that an online presence isn’t a panacea for Main Street retailers, but rather another tool to engage customers and strengthen human connection. </p>
<p>Many Main Street retailers are keenly aware of the risk of losing customers permanently due to COVID-19, and are focusing on building a strong online footprint in support of their physical, community-based presence. As we head into 2021 and the end of the pandemic is in sight due to new vaccines, those efforts are particularly important.</p><img src="https://counter.theconversation.com/content/150605/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Brent McKnight is grateful for his partnership with the Burlington Downtown Business Association (BDBA) and the Ontario Business Improvement Area Association (OBIAA) on this research. He has received no funding from these organizations. </span></em></p>The COVID-19 pandemic offers small retailers an opportunity to engage customers who are changing their habits.Brent McKnight, Associate Professor, DeGroote School of Business, McMaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1425322020-08-21T12:38:31Z2020-08-21T12:38:31ZWhy companies were so quick to endorse Black Lives Matter<figure><img src="https://images.theconversation.com/files/353483/original/file-20200818-24757-1j4t978.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4007%2C2885&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Young people have dominated Black Lives Matter protests.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Breonna-Taylor-March-in-New-York-City-8-9-20/963856a2f77b4e2dace84a94205fc4a2/95/0">STRF/STAR MAX/IPx</a></span></figcaption></figure><figure class="align-center ">
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<p>It’s not every day that you see companies switch gears on a dime. </p>
<p>Not too long ago, few companies paid much attention to Black Lives Matter. Today, in the wake of the George Floyd protests, it seems as if <a href="https://adage.com/article/cmo-strategy/regularly-updated-blog-tracking-brands-responses-racial-injustice/2260291">most major companies</a> including <a href="https://twitter.com/tim_cook/status/1271113929754685441">Apple</a>, <a href="https://blog.aboutamazon.com/policy/amazon-donates-10-million-to-organizations-supporting-justice-and-equity?ots=1&slotNum=0&imprToken=36b9fbd5-87e9-5277-f5d&tag=curbedcom06-20&linkCode=w50">Amazon</a> and <a href="https://www.facebook.com/zuck/posts/10111969612272851">Facebook</a> have endorsed the movement – or at a minimum pledged millions of dollars to fight racism and vowed to do more to end discrimination in their workplaces.</p>
<p>So how did companies so swiftly decide to align with Black Lives Matter? </p>
<p>As with anything, there usually are lots of reasons. But, as a <a href="https://ehchan.com">scholar who studies the psychology of consumer behavior</a> and how companies respond to it, I believe that one stands out: young people. </p>
<p>A post-Floyd poll <a href="https://www.businessinsider.com/how-gen-z-feels-about-george-floyd-protests-2020-6">found that nearly 90%</a> of members of Generation Z – those born from 1997 to 2005 – believe African Americans are treated differently and support Black Lives Matter. That compares with just <a href="https://www.pewresearch.org/fact-tank/2016/07/08/how-americans-view-the-black-lives-matter-movement/">60%</a> of respondents under 30 who said they supported the movement back in 2016. More than two-thirds of Generation Z and millennials think brands <a href="https://www.ypulse.com/article/2020/06/01/most-young-consumers-want-brands-to-support-blacklivesmatter-heres-how">should be even more involved</a> in Black Lives Matter. </p>
<p>What’s more, a group of people who <a href="https://www.pewresearch.org/fact-tank/2020/07/09/younger-adults-differ-from-older-ones-in-perceptions-of-news-about-covid-19-george-floyd-protests/">notably don’t follow the news</a> paid very close attention to coverage of George Floyd, with <a href="https://www.pewresearch.org/fact-tank/2020/07/09/younger-adults-differ-from-older-ones-in-perceptions-of-news-about-covid-19-george-floyd-protests">83% of 18- to 29-year-olds following the news closely</a>. </p>
<p>[<em><a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=experts">Expertise in your inbox. Sign up for The Conversation’s newsletter and get expert takes on today’s news, every day.</a></em>]</p>
<p>While a growing share of Americans of all ages and demographics have responded to Floyd’s murder by acknowledging systemic racism pervades the criminal justice system, the views of generations Y and Z are particularly significant because attracting younger consumers is so vital to brands’ future growth. As of 2020, <a href="https://knoema.com/infographics/egyydzc/us-population-by-age-and-generation-in-2020">there were 82 million millennials</a> and 86 million members of Gen Z in the United States, compared with 69 million baby boomers. </p>
<p>As a result, the spending power of millennials – born from 1981 to 1996 – <a href="https://www.ypulse.com/article/2020/01/09/millennials-gen-z-teens-combined-spending-power-is-nearly-3-trillion-in-2020/">is currently estimated at about US$2.5 trillion a year</a>, according to YPulse, which researches younger generations. That could grow significantly in the coming years as <a href="https://www.forbes.com/sites/jackkelly/2019/10/26/millennials-will-become-richest-generation-in-american-history-as-baby-boomers-transfer-over-their-wealth/#50b2b3936c4b">they inherit $68 trillion in wealth</a> from their baby boomer parents, which will constitute one of the greatest wealth transfers in modern times. </p>
<p>Generation Z’s spending power is a lot lower, since few of them have entered the workforce, but <a href="https://www.morganstanley.com/ideas/gen-z-millennials-set-for-consumer-spending-increases">Morgan Stanley predicts</a> their spending to swell in the coming years. </p>
<p>And <a href="https://www.5wpr.com/new/research/5wpr-2020-consumer-culture-report/">the vast majority of millennials</a> say it’s important that the companies they buy from share their values, which <a href="https://morningconsult.com/wp-content/uploads/2018/07/Morning-Consult-Brand-Toolbox-Millennial-Report.pdf">is also true for Gen Z</a>.</p>
<p>It’s also noteworthy that brands are expressing their support for the movement largely via social media, which is <a href="https://doi.org/10.1108/JPBM-04-2018-1842">the primary place millennials</a> learn about brands.</p><img src="https://counter.theconversation.com/content/142532/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eugene Y. Chan does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Millennials and Gen Z overwhelmingly support the movement, and consumer brands are well aware of their growing spending power.Eugene Y. Chan, Associate Professor, Purdue UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1381372020-05-13T14:52:07Z2020-05-13T14:52:07ZHow the Covid-19 crisis could remodel the luxury industry<p>The Covid-19 crisis has hit the luxury and fashion industry hard. According to a study conducted by the <a href="https://www.linkedin.com/pulse/covid-19-recovery-scenarios-fashion-luxury-brands-javier-seara/">Boston Consulting Group</a>, sales in these two sectors could drop by 25% to 30% compared to 2019.</p>
<p>The economic and health crisis could also have long-term repercussions on purchasing behaviour, trends and trigger tremendous changes in the luxury field.</p>
<h2>A sector at a standstill</h2>
<p>Laudably, the main luxury houses have reallocated their production tools to produce hydroalcoholic gels (LVMH, Hermès), manufacture face masks and lab coats (Kering, Chanel, Louis-Vuitton). They also decided to provide financial support to <a href="https://r.lvmh-static.com/uploads/2020/03/pr_lvmh-masques-210320-va-def.pdf">health services</a> and to their <a href="https://finance.hermes.com/var/finances/storage/original/application/3ca935d5fcad69a9655e16584215c307.pdf">employees</a>.</p>
<p>Some companies, such as <a href="https://www.reuters.com/article/hermes-dividend/update-1-french-luxury-group-hermes-reduces-proposed-dividend-over-coronavirus-idUSL8N2BN8TH">Hermès</a>, have proposed a reduction in the dividend paid to shareholders and no raise in management remuneration. On April 16, LVMH CEO, Bernard Arnault announced that he would give up <a href="https://www.marketscreener.com/LVMH-MOET-HENNESSY-LOUI-4669/news/LVMH-Moet-Hennessy-Louis-Vuitton-Executives-and-Board-Cut-Pay-for-April-May-30423139/">two months’ salary</a>.</p>
<p>Beyond these immediate measures, luxury goods companies have no choice but to rethink their strategies to face a more severe crisis for the sector than the financial crisis of 2007.</p>
<p>According to Javier Seara of the Boston Consulting Group, luxury goods sales could plunge by <a href="https://www.linkedin.com/pulse/covid-19-recovery-scenarios-fashion-luxury-brands-javier-seara/">65% to 80% in March and April 2020</a> compared to 2019 before rebounding at the end of the year. The impact will not be the same in all countries, according to the US firm: In Western Europe, it could fall by 30% to 40%; in Northern Europe, from 32% to 38%, in North America from 23% to 34% and China from 24% to 30%.</p>
<p>The drop in sales is among others correlated with the difficulties in selling the spring-summer 2020 collections. In China, some luxury brands were able to make online sales (notably thanks to the WeChat application) but not all firms have deployed an omnichannel strategy and nor are they able to ensure deliveries. In Europe the lockdown came later. The end of Chinese tourism and the closing of stores small and large as well as department stores will have disastrous effects on end-of-year inventory levels and on income. In the United States, the same trend is looming and several historic players, including Neiman Marcus and JC Penney, may be filing for bankruptcy </p>
<p>Companies suffer not only on the sales side, but they also have to cope with a supply issue.</p>
<p>According to a study led by Mckinsey & Company, <a href="https://www.mckinsey.com/industries/retail/our-insights/a-perspective-for-the-luxury-goods-industry-during-and-after-coronavirus">40% of the world’s production</a> of luxury goods occurs in Italian factories. Most of these are medium-sized or family businesses and have not restarted yet despite a gradual easing of restrictions.</p>
<p>As the major luxury brands still produce mostly in their country of origin or nearby, Europe with its main manufacturing sites and workshops in France and Italy is particularly affected.</p>
<h2>A new era for luxury?</h2>
<p>In the longer term, significant changes are to be considered. Here are five main trends that we may see:</p>
<p><strong>1. A ramping up of digitalization</strong></p>
<p>To dispose of their inventories during the closure of their stores, luxury houses will strive to offer an online service with a first-class customer experience. It should be a flawless process from the product offering through to the secured payment and timely delivery. Luxury groups will have to attract many more customers (at least temporarily) to their digital platforms and create a new customer journey.</p>
<p>In the short term, if they do not already have their own platform, some players may collaborate with existing marketplaces (i.e., merchant websites managed by a third-party provider of goods or services), for example, Farfetch. But they will also have to roll out their own online sales channels to fully control the customer experience and preserve their brand image. This will involve initiatives such as the creation of virtual stores or ephemeral “pop-up shops”, as some players have already done on WeChat.</p>
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<img alt="" src="https://images.theconversation.com/files/328465/original/file-20200416-192689-1t4lrwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/328465/original/file-20200416-192689-1t4lrwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=325&fit=crop&dpr=1 600w, https://images.theconversation.com/files/328465/original/file-20200416-192689-1t4lrwh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=325&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/328465/original/file-20200416-192689-1t4lrwh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=325&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/328465/original/file-20200416-192689-1t4lrwh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=408&fit=crop&dpr=1 754w, https://images.theconversation.com/files/328465/original/file-20200416-192689-1t4lrwh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=408&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/328465/original/file-20200416-192689-1t4lrwh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=408&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">The Farfetch marketplace offers the sale of luxury products of various brands.</span>
<span class="attribution"><span class="source">Screen capture</span></span>
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<p><strong>2. A second-hand market boom</strong></p>
<p>Before the Covid-19 crisis, consulting firms BCG and Altagamma predicted that the <a href="http://media-publications.bcg.com/france/True-LuxuryGlobalConsumerInsight2019--Plenary--vMedia.pdf">second-hand market</a>, estimated at 22 billion euros in 2018, would grow by 12% by 2021. The emergence of <a href="http://media-publications.bcg.com/france/True-LuxuryGlobalConsumerInsight2019--Plenary--vMedia.pdf">ethical and ecological considerations</a> among consumers is thus a favourable prospect for sites like <a href="https://us.vestiairecollective.com/">Vestiaire Collective</a>, founded in France and which has become one of the world’s largest online marketplaces to buy and sell pre-owned designer clothes and accessories.</p>
<p>In difficult times, customers may turn even more to these second-hand goods. Consumers with luxury items and in need of cash will offer their items for sale, thus expanding supply, albeit at lower prices which could stimulate demand. This trend seems to be gaining momentum even in <a href="https://jingdaily.com/hong-kong-recession-sustainable-second-hand-luxury-market/">Hong Kong</a>.</p>
<p><strong>3. A shift in consumer behaviour toward more responsible luxury</strong></p>
<p>On April 11, Hermès reopened its Guangzhou flagship store and reportedly achieved a <a href="https://wwd.com/fashion-news/fashion-scoops/hermes-hauled-in-2-7-million-in-one-china-store-on-saturday-sources-1203559738/">$2.7 million turnover</a> in a single day. Will the phenomenon of <a href="https://www.bloomberg.com/news/articles/2020-03-12/luxury-shoppers-in-china-emerge-from-quarantine-to-buy-again">revenge spending</a> observed in China spread to other countries? Or does it illustrate the attractiveness of Hermès in particular?</p>
<p>While it is too early to draw conclusions, the example is interesting. It can be seen as an aspiration for timeless luxury and for an ethically committed house. This trend was evident even before the start of the pandemic, in particular among millennials (those born between the early 1980s and the late 1990s): <a href="http://media-publications.bcg.com/france/True-LuxuryGlobalConsumerInsight2019--Plenary--vMedia.pdf">64% indicated that would be influenced</a> by sustainability in their buying behaviour.</p>
<p>Still, many consumers and resellers will face a reduction in their financial resources and could put a hold on their purchases. This situation may force luxury houses to reduce the number of collections and products offered each year. Consumers could even reconsider the <a href="https://www.mckinsey.com/%7E/media/McKinsey/Industries/Retail/OurInsights/TheStateofFashion2019Ayearofawakening/The-State-of-Fashion-2019-final.ashx">concept of ownership</a> and shift toward rental services.</p>
<p><strong>4. A probable cut in communication and public relations budgets spending</strong></p>
<p>In the current context, brands will have to review the way they communicate. In particular, fashion weeks in their traditional format – and whose June editions have now been <a href="https://www.vogue.com/article/milan-paris-mens-fashion-week-couture-fashion-week-2020-canceled">cancelled in Paris and Milan</a> – must be revisited. They could be replaced by virtual experiences and more <a href="https://twitter.com/BFMParis/status/1243644306809851904">“private” events</a>. In the coming months, the organisation of large gatherings will indeed remain limited. Faced with the crisis, it is self-evident that luxury companies will have to restrict spending and that communication and events budgets will be the first to be impacted.</p>
<p><strong>5. Consolidations in the luxury industry</strong></p>
<p>With the financial difficulties, many players, and in particular the smallest, will become more-affordable targets. The most financially solid players such as LVMH, Kering or Chanel will no doubt have the option of buying out competitors, subcontractors and even suppliers.</p>
<p>Confronted with the lasting effects of the crisis and taking into account the observed consumption trends, significant changes in the industry are to be expected. Concentration of ownership in the luxury sector will intensify, the shift to digital will become absolutely crucial, and efforts in terms of sustainable development will be expected from consumers. The new business models linked to second-hand and luxury goods rental should also come out as winners.</p>
<p>This crisis, which forces us all to reconsider our purchasing decisions could bring the era of “slow luxury” and trigger a new awareness of the <a href="https://www.ellenmacarthurfoundation.org/circular-economy/concept">circular economy</a>.</p><img src="https://counter.theconversation.com/content/138137/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Isabelle Chaboud ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>An acceleration of digital development, of the second-hand market and of concentration movements are notably to be expected in the sector.Isabelle Chaboud, Professeur associé d’analyse financière, d’audit et de risk management - Directrice de Programme pour le MSc in Fashion Design & Luxury Management- Responsable de la spécialisation MBA "Brand & Luxury Management", Grenoble École de Management (GEM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1337692020-03-18T17:51:41Z2020-03-18T17:51:41ZTrump’s right: Congress should give Americans $1,000 right now to fight the coronavirus recession<figure><img src="https://images.theconversation.com/files/321374/original/file-20200318-1953-ts0hf8.jpg?ixlib=rb-1.1.0&rect=149%2C99%2C6510%2C4343&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">People need cash in hand.</span> <span class="attribution"><span class="source">Patrick Foto/Getty Images</span></span></figcaption></figure><p>Much of the U.S. economy <a href="https://www.nytimes.com/2020/03/16/business/economy/coronavirus-us-economy-shutdown.html">has effectively shut down</a> as America increasingly takes the coronavirus pandemic seriously. Retail stores and restaurants across the country are vacant. The entertainment and hospitality industries are on hiatus.</p>
<p>While necessary to slow the spread of COVID-19, this will have <a href="https://www.nytimes.com/2020/03/17/upshot/coronavirus-economy-crisis-demand-shock.html">grave consequences</a> for the economy as well as for the tens of millions of workers who <a href="https://fortune.com/2020/03/17/trump-mnuchin-coronavirus-emergency-funds/">depend on hourly wages</a> to buy food, medicine and put a roof over their heads. </p>
<p>The Trump administration is finally taking it seriously too and asking Congress to <a href="https://www.nytimes.com/2020/03/17/world/coronavirus-update-latest-news.html?action=click&module=Spotlight&pgtype=Homepage">pass an US$850 billion stimulus package</a>, including <a href="https://fortune.com/2020/03/17/trump-mnuchin-coronavirus-emergency-funds/">sending $1,000 checks</a> directly to all adult Americans. Some lawmakers are <a href="https://markets.businessinsider.com/news/stocks/senate-unveils-proposal-send-each-american-money-cash-coronavirus-economy-2020-3-1029004861">pushing for larger payments</a> and over several months. </p>
<p>This is welcome news. As a <a href="https://www.libarts.colostate.edu/people/pressman/">macroeconomist specializing in income inequality</a>, I know direct payments are just what low-wage Americans suddenly without a paycheck need to endure the crisis, which could last many months. </p>
<h2>Low-income Americans are hit hardest</h2>
<p>Unlike the <a href="https://theconversation.com/us/topics/global-financial-crisis-447">2008 financial crisis</a>, this is an economic crisis hitting working-class and low-income Americans hardest. </p>
<p>Professional, salaried workers <a href="https://www.bls.gov/news.release/flex2.t01.htm">are able to work from home</a>. They will continue to get regular paychecks and be in a good position to weather the economic storm created by the coronavirus. Professionals who lose some income <a href="https://www.pewsocialtrends.org/2020/01/09/trends-in-income-and-wealth-inequality/">likely have some savings</a> to rely on until the economy recovers.</p>
<p>On the other hand, the waiters, retail clerks, hospitality industry employees and other hourly workers who <a href="https://www.bls.gov/news.release/flex2.t01.htm">make up nearly 60% of the U.S. labor force</a> will be without work for an indefinite amount of time and rely on an unemployment insurance program that <a href="https://www.brookings.edu/opinions/when-the-next-recession-hits-will-unemployment-benefits-be-generous-enough/">is far too stingy</a>.</p>
<p>Furthermore, low-income Americans typically live paycheck to paycheck with virtually no savings. A recent survey by the Federal Reserve found that 40% of households <a href="https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-dealing-with-unexpected-expenses.htm">couldn’t come up with $400</a> to meet an unexpected expense.</p>
<p>Compounding this problem is excessive household debt, now <a href="https://www.newyorkfed.org/microeconomics/hhdc.htm">exceeding $14 trillion</a>. Highly indebted households are more vulnerable during an economic downturn. Their debt obligations must be paid, even when their income drops. <a href="https://doi.org/10.1080/00213624.2019.1603765">My own research</a> has found that many households were in financial distress well before the coronavirus hit. Now they are much more likely to default on loan repayments. </p>
<p>The bottom line is that people need money to survive. </p>
<h2>An economy of spending</h2>
<p>What’s more, the U.S. economy needs people to spend money. </p>
<p>Consumer spending <a href="https://www.inc.com/peter-cohan/consumer-spending-is-keeping-economy-from-shrinking-but-a-new-survey-of-10000-americans-says-that-might-end-in-2020.html">accounts for 70% of economic activity</a>. It <a href="https://markets.businessinsider.com/news/stocks/us-consumer-spending-unlikely-gain-2020-report-shows-confidence-index-2019-12-1028789820">was already slowing</a> and will slow much further now that people are losing their jobs and incomes.</p>
<p>Like the coronavirus, the problem of households in financial distress must be contained before things spiral out of control. Millions of retail clerks and bartenders suddenly without a job for several months can’t spend and can’t keep the economy growing. Their spending is others’ income, which means more companies will lose sales and other workers will lose their jobs.</p>
<p>They also won’t be able to repay their debts, whether a mortgage, auto loan or credit card. When lots of indebted consumers can’t repay their loans, financial institutions are at risk of going under, leading to a real financial crisis, as <a href="https://www.nytimes.com/2020/03/17/business/italy-banks-coronavirus.html">Italy now appears to be experiencing</a>.</p>
<h2>The basics of basic income</h2>
<p>That’s what makes quick payments to Americans so vital.</p>
<p>Unlike many other forms of stimulus, the U.S. can send citizens $1,000 very easily and without delay – the Trump administration hopes to do this within a couple of weeks. Ideally, it does it with no questions asked, no strings attached and for many months.</p>
<p>It’s basically just a temporary form of what entrepreneur <a href="https://www.politifact.com/article/2019/aug/12/andrew-yangs-universal-basic-income-proposal-expla/">Andrew Yang talked about a lot</a> during his run for the presidency, and <a href="https://www.bloomberg.com/opinion/articles/2019-06-21/universal-basic-income-backers-harm-their-case-with-bad-arguments">it’s hardly new</a>. When done on a permanent basis, it’s known as a basic income guarantee and has been proposed by a variety of people, from <a href="https://www.usatoday.com/story/opinion/2020/02/17/universal-basic-income-outlive-andrew-yang-2020-campaign-column/4751726002/">liberals like Yang</a> to conservatives like economist <a href="https://www.theatlantic.com/politics/archive/2014/08/why-arent-reformicons-pushing-a-guaranteed-basic-income/375600">Milton Friedman</a>. </p>
<p>While people have an urgent need for money to simply pay bills and buy food now, the basic income guarantee is usually pushed as a longer-term solution to reducing poverty and inequality, as well as to offset the <a href="https://www.cnbc.com/2019/01/25/these-workers-face-the-highest-risk-of-losing-their-jobs-to-automation.html">expected declines in employment</a> as a result of automation and other technologies in the coming decades. </p>
<p>It’s unclear for how long the White House wants to send out checks, but in my view they should be sent out each month until the economic crisis ends so that people can pay the rent, pay utilities and buy food. </p>
<h2>A vital injection</h2>
<p>A check in the mail is so very vital right now, but it’s not enough. </p>
<p>The U.S. should also expand <a href="https://www.brookings.edu/opinions/when-the-next-recession-hits-will-unemployment-benefits-be-generous-enough/">unemployment benefits and other social insurance programs</a>. <a href="https://www.cnbc.com/2020/03/16/sba-small-business-disaster-loans-never-met-test-like-coronavirus.html">Small businesses</a> whose customers have vanished will need more support so that they can survive. And some industries, like airlines, <a href="https://www.nytimes.com/2020/03/11/business/dealbook/coronavirus-bailouts.html">may need a bailout</a>. </p>
<p>But $1,000 would be a good down payment to help Americans <a href="https://www.politico.com/news/2020/03/17/coronavirus-layoffs-america-unemployment-134819">already struggling and losing their jobs</a>. </p>
<p>[<em>You need to understand the coronavirus pandemic, and we can help.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=upper-coronavirus-help">Read our newsletter</a>.]</p><img src="https://counter.theconversation.com/content/133769/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Pressman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An economist specializing in inequality explains how a basic income guarantee is just what low-wage workers and the economy need.Steven Pressman, Professor of Economics, Colorado State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1325522020-02-26T21:05:51Z2020-02-26T21:05:51ZStocks are plummeting – could coronavirus cause a recession?<figure><img src="https://images.theconversation.com/files/317444/original/file-20200226-24676-1o9m555.jpg?ixlib=rb-1.1.0&rect=5%2C52%2C3489%2C2273&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Coronavirus seems to be on a collision course with the US economy and its 12-year bull market. </span> <span class="attribution"><span class="source">AP Photo/Ng Han Guan</span></span></figcaption></figure><p>Fears are growing that the new coronavirus will infect the U.S. economy. </p>
<p>U.S stocks are headed for <a href="https://www.bloomberg.com/news/articles/2020-02-26/asia-stocks-point-to-cautious-start-on-virus-fears-markets-wrap">their worst week since the 2008 financial crisis</a>; <a href="https://www.marketwatch.com/story/what-apple-walmart-and-other-us-companies-are-saying-about-the-coronavirus-2020-02-18">companies including Apple and Walmart have been warning</a> of potential sales losses from COVID-19 and the Centers for Disease Control and Prevention <a href="https://www.nytimes.com/2020/02/25/health/coronavirus-us.html">told Americans to prepare</a> for the outbreak to spread to the United States, with unknown but potentially “bad” consequences. </p>
<p>Lately, many people have asked me, as <a href="https://www.mendeley.com/authors/37086344400/">an economist</a>, a question I haven’t heard in years: Could a virus really send the global and U.S. economies into recession – or worse? Put more pertinently, will COVID-19 trigger an economic meltdown?</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/317455/original/file-20200226-24680-7kxoms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/317455/original/file-20200226-24680-7kxoms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=475&fit=crop&dpr=1 600w, https://images.theconversation.com/files/317455/original/file-20200226-24680-7kxoms.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=475&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/317455/original/file-20200226-24680-7kxoms.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=475&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/317455/original/file-20200226-24680-7kxoms.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=597&fit=crop&dpr=1 754w, https://images.theconversation.com/files/317455/original/file-20200226-24680-7kxoms.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=597&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/317455/original/file-20200226-24680-7kxoms.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=597&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Oakland Municipal Auditorium was used as a temporary hospital during the 1918 pandemic, which infected 1 in 3 people.</span>
<span class="attribution"><span class="source">Underwood Archives/Getty Images</span></span>
</figcaption>
</figure>
<h2>What a virus can do</h2>
<p>The worry is understandable; viruses are scary things. I’ve read my share of medical thrillers based on <a href="https://www.panmacmillan.com/authors/robin-cook/pandemic/9781509892938">some new virus spreading throughout the globe</a> killing millions, destroying businesses and almost ending civilization until heroes – super or not – contain it at the last minute. </p>
<p>While these are works of fiction, we only have to look back 100 years to find a real example of what an unchecked virus can do. </p>
<p>The <a href="https://theconversation.com/the-greatest-pandemic-in-history-was-100-years-ago-but-many-of-us-still-get-the-basic-facts-wrong-89841">1918-1919 influenza pandemic</a>, also known as the Spanish flu, <a href="https://www.cdc.gov/flu/pandemic-resources/1918-pandemic-h1n1.html">killed at least 50 million people</a> worldwide, with some estimates putting the number <a href="https://www.history.com/news/spanish-flu">as high as 100 million</a>. In the U.S., almost 1 of every 3 people became infected, and 500,000 died. Even for those who survived, there were numerous cases of <a href="http://content.time.com/time/health/article/0,8599,1929814,00.html">long-term physical disability</a>. </p>
<p>Fortunately, the adverse economic impacts were short-lived. With today’s more mobile and interconnected world, however, some suggest any large-scale pandemic <a href="https://www.stlouisfed.org/%7E/media/files/pdfs/community-development/research-reports/pandemic_flu_report.pdf">would be much more severe</a>, <a href="https://www.reuters.com/article/us-reutersmagazine-davos-flu-economy/flu-conomics-the-next-pandemic-could-trigger-global-recession-idUSBRE90K0F820130121">with costs in the trillions</a>.</p>
<p>To date, deaths from the coronavirus have been very small, <a href="https://www.worldometers.info/coronavirus/">totaling a little over 2,700 worldwide</a>, out of more than 80,000 known cases – or only about 3.4%. Almost all of the deaths have been in China, where the virus was first detected. Rapid actions to quarantine infected individuals have likely limited the spread.<br>
Yet even if the death rates are relatively low, the economy can still suffer. These economic impacts would likely come in four forms: shortages of products from China, reduced sales to China, a drop in consumer spending based on fears about the virus and falling stock prices. </p>
<p>Let me evaluate the potential impact of each, but bear in mind that they are all interconnected, and a drop in just one can affect the others.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/pja6bOqFKmo?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">A look at how the coronavirus could affect the U.S. economy.</span></figcaption>
</figure>
<h2>Product shortages</h2>
<p>The <a href="https://www.census.gov/foreign-trade/balance/c5700.html">U.S. imports over US$500 billion of products</a> each year from China, everything from smartphones and televisions to clothing and machine parts. Sick people in China can’t work, which means they can’t make products. Closing off parts of the country from other areas also curtails production. </p>
<p>The reduced availability of Chinese products could slow some segments of the U.S. economy, with the computer and electronics industries being the most vulnerable. For example, many smartphones sold in the U.S. are assembled in China. Although U.S. retailers have some inventory, shortages will likely appear if the pandemic persists. </p>
<p>Americans are already beginning to see some impacts: for example, in shortages of <a href="https://www.axios.com/coronavirus-threatens-drug-shortage-318c9e7b-5d92-4a5e-b992-2478023c6d01.html">dozens of drugs</a> and other medical products and longer wait times for a variety of products such as <a href="https://www.wsj.com/articles/coronavirus-cripples-supply-chains-for-many-small-u-s-businesses-11582286402">bicycles</a> and <a href="https://www.bloomberg.com/news/articles/2020-02-22/coronavirus-hobbles-supply-chains-from-watches-to-lobsters">board games</a>.</p>
<p>It’s too early to say how severe it will get, but the dependency of U.S. supply chains on China is a major concern. It shows how something like the coronavirus could become a huge problem in the modern economy.</p>
<h2>Sales may take a hit</h2>
<p>On the flip side, <a href="https://oec.world/en/visualize/tree_map/hs92/import/chn/usa/show/2017/">U.S. companies sell well over $100 billion of products</a> to China annually, with the most important being technology like computer chips and agricultural products such as soybeans.</p>
<p>These sectors have already taken a hit from the tariffs imposed by China during the <a href="https://fortune.com/2019/11/15/china-trade-war-us-farmers/">U.S.-China trade war</a> of the last two years. The recent thaw in the conflict – and a <a href="https://www.nytimes.com/2020/01/15/business/economy/china-trade-deal.html">limited deal with China</a> – had created optimism for U.S. factories and farms that increased sales were around the corner.</p>
<p>That corner may be harder to reach as a result of the coronavirus outbreak and <a href="https://www.theguardian.com/business/2020/feb/23/economic-impact-of-coronavirus-outbreak-deepens">its significant impact on the Chinese economy</a>. More U.S. companies <a href="https://www.marketwatch.com/story/what-apple-walmart-and-other-us-companies-are-saying-about-the-coronavirus-2020-02-18">are now worrying</a> about their sales to China as a result. </p>
<h2>Consumers still spending</h2>
<p>Ultimately, more than anything, the spending of consumers drives the U.S. economy, <a href="https://www.inc.com/peter-cohan/consumer-spending-is-keeping-economy-from-shrinking-but-a-new-survey-of-10000-americans-says-that-might-end-in-2020.html">accounting for roughly 70%</a> of growth. Economists, policymakers and traders will be closely watching measures of this to help them understand how worried they should be.</p>
<p>Significant declines in spending are usually the <a href="https://www.cnbc.com/2019/10/10/recession-risks-yellow-flag-consumer-spending-chart-shows-cracks.html">most direct cause of a recession</a> and often signal falling incomes and higher unemployment. But consumers also reduce spending as a result of fear – such as when they see traders panicking on Wall Street. That is, nothing actually bad has to happen to reduce spending, and this fear-induced penny pinching can have real-world consequences and even trigger a recession. </p>
<p><a href="https://www.fxstreet.com/analysis/lessons-for-us-consumer-spending-from-the-sars-outbreak-202001271649">We saw this happen</a> with the SARS virus in 2003, which resulted in 700 deaths worldwide. Consumer confidence about the future dipped, and so did spending, especially on durable products like appliances, vehicles and furniture. Fortunately, the dip was short-lived, and no recession resulted. </p>
<p>Although coronavirus-related deaths already exceed those from SARS, consumer confidence has not yet been affected. The latest data, released on Feb. 25, shows it <a href="https://www.conference-board.org/data/consumerconfidence.cfm">continued to rise in February</a>, albeit at a slower-than-expected pace and based on a survey taken before the recent stock market swoon. And measures of consumer spending like retail sales <a href="https://www.census.gov/retail/marts/www/marts_current.pdf?mod=article_inline">are also still growing</a>, if at a subdued rate. </p>
<p>Also, there could be two positive offsets from the virus that will boost consumers. One is a <a href="https://www.cnbc.com/quotes/?symbol=US10Y">reduction in interest rates</a> that has already occurred and will be welcome news for people borrowing money for a home or vehicle. Second is a <a href="https://www.cnbc.com/quotes/?symbol=@CL.1">drop in oil</a> – and, ultimately, gas – prices that will mean less money to be paid at the pump.</p>
<p>So it appears, for now, that consumers are more focused on jobs, incomes and gas prices than on COVID-19.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/317442/original/file-20200226-24659-j1a9yh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/317442/original/file-20200226-24659-j1a9yh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/317442/original/file-20200226-24659-j1a9yh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/317442/original/file-20200226-24659-j1a9yh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/317442/original/file-20200226-24659-j1a9yh.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/317442/original/file-20200226-24659-j1a9yh.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/317442/original/file-20200226-24659-j1a9yh.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Traders are beginning to fret about the economic impact of the coronavirus outbreak.</span>
<span class="attribution"><span class="source">Spencer Platt/Getty Images</span></span>
</figcaption>
</figure>
<h2>A rocky road for stocks</h2>
<p>Lastly, let’s look at the impact on stocks. </p>
<p>One thing traders and investors <a href="https://www.bloomberg.com/opinion/articles/2019-08-05/stocks-plunge-because-markets-hate-uncertainty">absolutely do not like is uncertainty</a>. And that’s what we have right now: No one, not even me, knows how bad the outbreak will get or what the impact will be on companies, consumers and the economy. </p>
<p>Until we have a good idea of how much the virus will spread and whether containment efforts will be successful, markets could remain wobbly. The Standard & Poor’s 500 stock index has plunged more than 10% since Feb. 21, <a href="https://fortune.com/2020/02/24/longest-bull-run-malaysia-prime-minister/">ending a bull market</a> that lasted 12 years. </p>
<p>A falling stock market could affect the real economy in a number of ways, including by sapping consumer confidence and reducing their spending.</p>
<p>But just as a bout of bad news can send markets into a tailspin, a reason for optimism could cause a rebound just as fast.</p>
<h2>Brace for impact – and uncertainty</h2>
<p>For now, we’ll all – traders, companies, consumers – have to just live with uncertainty, not knowing just how bad it will get. </p>
<p>The best all of us can do is monitor the situation and take <a href="https://www.cdc.gov/coronavirus/2019-nCoV/summary.html?CDC_AA_refVal=https%3A%2F%2Fwww.cdc.gov%2Fcoronavirus%2F2019-ncov%2Fabout%2Fwhat-you-should-do.html#anchor_1580064337377">precautions to prevent its spread</a> – and be ready if it does. </p>
<p>A key measure to watch is the trend in the number of new cases reported worldwide. A reduction is often a sign the virus is running its course. However, a jump in cases could be cause for alarm, especially if the increase is large.</p>
<p>Companies and industries in the U.S. having strong ties to China or other countries with major infections could be in for a rocky road ahead, but with any luck the challenges will last weeks or months – not years. As long as U.S. consumers continue to spend, the economy will continue to expand, and there’s little risk of recession. If the stock market tumbles further, however, all bets may be off. </p>
<p><em>This article has been updated from the original version published Feb. 26.</em></p>
<p>[<em>Insight, in your inbox each day.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=insight">You can get it with The Conversation’s email newsletter</a>.]</p><img src="https://counter.theconversation.com/content/132552/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Walden does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>An economist explains how a virus like COVID-19 could disrupt the US economy – and why it’s too soon to freak out just yet.Michael Walden, Professor and Extension Economist, North Carolina State UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1286542019-12-15T17:26:58Z2019-12-15T17:26:58ZWhy you should think twice before buying that new TV set<figure><img src="https://images.theconversation.com/files/306351/original/file-20191211-95111-148dj7d.jpg?ixlib=rb-1.1.0&rect=5%2C2%2C1991%2C1329&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Can you really afford a 3D TV set ?</span> <span class="attribution"><span class="source">Dusan Petkovic</span></span></figcaption></figure><p>Planning to buy a new TV set as a Christmas family gift? Your decision would probably be based on a series of technical characteristics, such as size or screen resolution. Yet at some point you might ask yourself: can I really afford this?</p>
<p>You would probably answer this question by taking into account not only the price of the TV, but also how much money you have and, more generally, how wealthy you are. But do you actually have the correct perception of your wealth?</p>
<h2>Distorted perceptions of personal wealth</h2>
<p>This question might sound trivial. In fact, right now you are probably thinking, “Sure, I might not know exactly how much is in my checking account or the exact value of my stocks, but I definitively have an approximate idea of how much I am worth in terms of wealth”. Right?</p>
<p>Wrong. A growing number of theories and findings in <a href="https://www.sciencedirect.com/science/article/pii/S004727271200117X">economics</a> and <a href="https://journals.sagepub.com/doi/full/10.1177/1745691610393524">psychology</a> suggest that people often have a distorted perception of how wealthy they are. For example, people often overestimate (or underestimate) how rich they are compared to their peers, or the people living in the same area.</p>
<p>Another reason explaining the misperception of wealth may be related to your expectations about the possible materialization of <a href="https://link.springer.com/chapter/10.1057/9781137529589_4">future earnings</a>.</p>
<p>Let’s imagine that you decide to bet 100 euros on your football team winning the Champions League final. It is possible that you are so confident that the bet will pay off, that you will perceive yourself as being richer even before your team plays the game.</p>
<p>Another reason for wealth misperception is the so-called <a href="https://www.sciencedirect.com/science/article/pii/S0165188912001480">money illusion problem</a>. As <a href="https://academic.oup.com/qje/article/112/2/341/1870915">research has shown</a>, people often tend to ignore the change in prices and focus only on the relative change of their wealth (or income). For example, imagine your wealth has increased from last year. If you ignore the increase in prices in the same period, you will perceive your wealth to be much higher than last year, but in fact it is only slightly higher (or maybe even lower).</p>
<h2>A lab experiment</h2>
<p>In a research supported by the <a href="https://www.axa-research.org/en/project/alberto-cardaci">Axa Research Fund</a> and described in a <a href="https://www.tse-fr.eu/publications/perceived-wealth-cognitive-sophistication-and-behavioral-inattention">November 2019 working paper</a>, I conducted a laboratory experiment with economists Tiziana Assenza and Domenico Delli Gatti, to dig deeper into the issue of wealth misperception.</p>
<p>In the study, we built a controlled environment where wealth misperception should not emerge and tested whether we observed it nonetheless. In the experiment, each subject was shown some pairs of financial portfolios and was asked to report if they perceived any portfolio in each pair as financially better off than the other.</p>
<p>The key feature was that the paired portfolios were financially equivalent. So, a study participant who is both rational and has at least a basic knowledge of key financial concepts should have perceived no portfolio as being better off. This would indicate a correct perception of wealth.</p>
<p>This is not what we observed, however. Approximately 80% of the subjects perceived one of the equivalent portfolios as better off. In other words, most of the subjects associated a given level of net wealth with different levels of perceived wealth.</p>
<p>This result is surprising, not only because it goes against standard consumer theory – whose idea of the <a href="https://onlinelibrary.wiley.com/doi/abs/10.1002/%28SICI%291099-0771%28199909%2912%3A3%3C183%3A%3AAID-BDM318%3E3.0.CO%3B2-F">fungibility of money</a> predicts the absence of such a phenomenon – but also because it is hard to reconcile with any rational criterion.</p>
<p>Moreover, even financially educated subjects exhibit the same pattern of answers. That is, financial education does not prevent the formation of wealth misperception (at least in our experiment). So, how to explain it?</p>
<h2>Are you a fast or a slow thinker?</h2>
<p>Our results suggest that this is related to differences in the way we think and the amount of attention we use.</p>
<p>In general, we all have two types of thoughts: some thoughts are faster, more intuitive and require a lower amount of attention; others, instead, are slower, more sophisticated but make use of a great deal of attention.</p>
<p>These <a href="https://www.cambridge.org/core/journals/behavioral-and-brain-sciences/article/individual-differences-in-reasoning-implications-for-the-rationality-debate/2906AEF620B36C10018DD291F790BE97">two systems of thought</a> are often referred to as System 1 and System 2, a terminology that dates back to what psychologists and behavioural economists call <a href="https://en.wikipedia.org/wiki/Thinking,_Fast_and_Slow">dual-process theory</a>.</p>
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À lire aussi :
<a href="https://theconversation.com/why-we-perceive-ourselves-as-richer-than-we-think-we-are-95965">Why we perceive ourselves as richer than we think we are</a>
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<p>Our results – obtained through the inclusion of the <a href="https://www.aeaweb.org/articles?id=10.1257/089533005775196732">Cognitive Reflection Test</a> in our experiment – indicate that subjects with distorted perceptions of wealth have a greater tendency to rely on their System 1. In other words, these people are faster but more inattentive thinkers, who process the available information in a more intuitive, yet wrong, way.</p>
<p>On the contrary, the minority of subjects, who make no mistake in the perception of wealth in our experiment, seem to be more sophisticated thinkers, who make a greater use of their attention.</p>
<p>Why does such wealth misperception matter?</p>
<p>In our experiment we also ask subjects to make a series of hypothetical consumption and borrowing decisions. We observe that subjects with wealth misperception are more impatient, greater spenders and less averse to the idea of borrowing, compared to subjects who make no mistake in the perception of wealth. In other words, less cognitively sophisticated people are more likely to have distorted perceptions of wealth and this, in turn, seems to affect the way they make decisions to spend and borrow.</p>
<p>In fact, the misperception of wealth is also associated with a greater tendency to rely on debt to finance consumption and deal with financial emergencies (like paying overdue bills), even if other options – such as using savings, or cutting on other expenses – are available. It seems that having a wrong perception of wealth corresponds to financial decisions that may jeopardise your financial health.</p>
<p>So, next time you have to decide whether to buy that expensive TV, think twice about it and consider carefully how much money you actually have.</p>
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<img alt="" src="https://images.theconversation.com/files/202296/original/file-20180117-53314-hzk3rx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/202296/original/file-20180117-53314-hzk3rx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=121&fit=crop&dpr=1 600w, https://images.theconversation.com/files/202296/original/file-20180117-53314-hzk3rx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=121&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/202296/original/file-20180117-53314-hzk3rx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=121&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/202296/original/file-20180117-53314-hzk3rx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=152&fit=crop&dpr=1 754w, https://images.theconversation.com/files/202296/original/file-20180117-53314-hzk3rx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=152&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/202296/original/file-20180117-53314-hzk3rx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=152&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<p><em>Created in 2007 to help accelerate and share scientific knowledge on key societal issues, the Axa Research Fund has been supporting nearly 600 projects around the world conducted by researchers from 54 countries. To learn more, visit the site of the <a href="https://www.axa-research.org/en/">Axa Research Fund</a>.</em></p><img src="https://counter.theconversation.com/content/128654/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alberto Cardaci's research is supported by the Axa Research Fund.</span></em></p>Recent experimental results suggest that distortions in the perception of wealth are linked to fast, inattentive thinking.Alberto Cardaci, Assistant Professor, Goethe University Frankfurt am MainLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1277672019-11-27T15:35:30Z2019-11-27T15:35:30ZHow to pick the ‘right’ amount to spend on holiday gifts – according to an economist<figure><img src="https://images.theconversation.com/files/303593/original/file-20191125-74588-14lbokt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Last-minute shopping can be stressful.</span> <span class="attribution"><span class="source">Everett Collection/Shutterstock.com</span></span></figcaption></figure><p>Gift giving is a <a href="https://www.cnbc.com/2018/11/06/us-christmas-retail-sales-to-surpass-1-trillion-this-year-emarketer.html">big deal</a> this time of year.</p>
<p>To find the <a href="https://www.today.com/shop/gift-guide">“perfect” gift</a>, <a href="https://www.consumerreports.org/cro/news/2010/11/americans-spend-42-hours-each-on-holiday-shopping-and-partying/index.htm">Americans will spend about 15 hours</a> shopping. Women will do about twice as much as men. And they’ll <a href="https://www.investopedia.com/financial-edge/1112/average-cost-of-an-american-christmas.aspx">shell out about US$1 trillion</a> on gifts. </p>
<p>While retailers <a href="https://www.cnn.com/2019/11/24/investing/stocks-week-ahead/index.html">relish the holiday shopping season</a> as a time when consumers open their purses or wallets, for many consumers – especially those <a href="https://www.retailwire.com/discussion/study-consumers-dont-enjoy-doing-their-holiday-shopping-online/">who do not like shopping</a> – these days are <a href="https://link.springer.com/article/10.1007/s11747-011-0284-z">filled with dread</a>. They mark moments when shoppers clog malls, websites become <a href="https://www.cnbc.com/2015/11/30/cyber-monday-why-retailers-cant-keep-their-sites-from-crashing.html">overloaded</a> and <a href="https://www.buzzfeednews.com/article/carolineodonovan/amazon-next-day-delivery-deaths">delivery trucks block streets</a>. The entire process generates untold amounts of <a href="https://www.mayoclinic.org/healthy-lifestyle/stress-management/in-depth/stress/art-20047544">stress</a> and <a href="https://doi.org/10.1016/0148-2963(93)90049-U">anxiety</a>. </p>
<p>One source of stress is just how much to spend on gifts. Spending too much can put you in financial distress. Spending too little may make you look cheap.</p>
<p>How do you decide what’s the “right” amount to spend on gifts? </p>
<p>As an <a href="http://businessmacroeconomics.com/">economist</a>, I study holidays and gift giving because a large fraction of retail shopping is driven by seasonal events like Black Friday, Cyber Monday and Super Saturday – also and more appropriately known as <a href="https://www.wkyc.com/article/life/holidays/holiday-season/high-anxiety-theres-a-new-name-for-last-minute-shopping-panic-saturday/95-ab9d1714-01f8-4624-9075-e1d09a15628b">Panic Saturday</a> – which is the last Saturday before Christmas.</p>
<h2>‘Dead weight loss’</h2>
<p>Gift giving is stressful because nobody wants to buy what they think is a perfect gift only to discover it is a dud.</p>
<p>The long lines of people <a href="https://www.cnbc.com/2018/12/21/how-to-navigate-store-holiday-return-policies.html">returning items after the holidays</a> seem evidence enough for that. </p>
<p>This has led some economists to argue there’s a <a href="https://www.nytimes.com/2014/12/21/upshot/an-economist-goes-christmas-shopping.html">“dead weight loss” to Christmas presents</a> that “destroys” <a href="https://www.amherst.edu/media/view/104699/original/christmas.pdf">as much as a third of their actual value</a>. A 2018 study estimated <a href="https://www.finder.com/unwanted-gifts">Americans spend $13 billion a year on unwanted gifts</a>. </p>
<p>Other economists, however, have resisted this Scrooge-like view of gift giving and <a href="https://www.jstor.org/stable/2118293">point to evidence that a present can actually have more value</a> to the recipient than the price the giver paid. In other words, a gift, even when technically unwanted, could have more value simply because someone else bought it for you. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/303784/original/file-20191126-112484-116ylj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/303784/original/file-20191126-112484-116ylj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303784/original/file-20191126-112484-116ylj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303784/original/file-20191126-112484-116ylj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303784/original/file-20191126-112484-116ylj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303784/original/file-20191126-112484-116ylj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303784/original/file-20191126-112484-116ylj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A third of those polled by Gallup said they planned to spent more than $1,000 on gifts this year.</span>
<span class="attribution"><span class="source">Piotr Piatrouski/Shutterstock.com</span></span>
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<h2>Setting a budget</h2>
<p>So if you’re dead set on buying some gifts, how much should you budget for it?</p>
<p>Since gifting is a social act, it makes sense to consider how much other people typically spend.</p>
<p>There are a number of surveys run each year that ask people during the fall to estimate what they plan on spending for holiday gifts. The National Retail Federation’s <a href="https://nrf.com/insights/holiday-and-seasonal-trends/winter-holidays/winter-holidays-data-center">annual survey of holiday spending</a> estimates the typical American will spend $659 on gifts for family, friends and co-workers in 2019. On the high end, <a href="https://news.gallup.com/poll/267914/americans-plan-spend-generously-christmas.aspx">Gallup</a> puts the average at $942, with more than a third of respondents expecting to spend over $1,000 on gifts.</p>
<p>But these figures aren’t that helpful for an individual since $659 means something different to someone making $40,000 a year versus $200,000. </p>
<p>That’s where the <a href="https://www.bls.gov/cex/home.htm">Consumer Expenditure Survey</a> comes in. It’s a large survey run by the Bureau of Labor Statistics that tracks the spending habits of 12,000 to 15,000 families each year. The government uses the survey to determine the cost of living and inflation rates for the typical family.</p>
<p>The survey follows gift giving very precisely. It <a href="https://www.bls.gov/cex/tables.htm#annual">has categories for common holiday presents</a> like electronics, books and clothes, as well as gifts that typically aren’t associated with the season such as housing and transportation. </p>
<p>After removing these non-holiday gifts, the typical U.S. family spends about 1% of its annual take-home pay on gifts. So whatever you earn, you could multiply it by 1% to get a figure that is in the ballpark of what the average American spends – but won’t break the bank.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/303787/original/file-20191126-112517-intge8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/303787/original/file-20191126-112517-intge8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/303787/original/file-20191126-112517-intge8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/303787/original/file-20191126-112517-intge8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/303787/original/file-20191126-112517-intge8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/303787/original/file-20191126-112517-intge8.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/303787/original/file-20191126-112517-intge8.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A gift is one way to make a child feel special.</span>
<span class="attribution"><span class="source">Alliance Images/Shutterstock.com</span></span>
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<h2>Making the holidays memorable</h2>
<p>While calculating a gift budget is one way to take the stress out of how much to spend on gifts, my family has another: Only give gifts to children. </p>
<p>Adults get wrapped boxes filled with paper. After the real gifts are opened and the young children are safely moved out of the way, we crumple up the paper and throw it at each other in our annual paper fight. </p>
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<p>That keeps the cost down while making the kids feel special. It also ensures the kids don’t feel left out when their friends talk about the gifts they received. Other families follow their own methods for <a href="https://www.laurengreutman.com/3-gift-christmas-rule/">controlling expenses</a>, such as <a href="http://www.secretsanta.com">secret Santa gifts</a> or by <a href="https://www.psychologytoday.com/us/blog/tech-support/201312/the-5-types-gift-givers">focusing attention more on togetherness</a> than on the stuff received.</p>
<p>Whether you have a paper fight or follow another family tradition, my main message is that it doesn’t take very much money to make the winter holidays memorable.</p><img src="https://counter.theconversation.com/content/127767/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Figuring out how much to spend on gifts can be stressful.Jay L. Zagorsky, Senior Lecturer, Questrom School of Business, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1259912019-10-28T18:46:33Z2019-10-28T18:46:33ZHalf a billion on Halloween pet costumes is latest sign of America’s out-of-control consumerism<p>Halloween spending is out of control.</p>
<p>Americans <a href="https://nrf.com/insights/holiday-and-seasonal-trends/halloween">are expected to spend US$8.8 billion</a> on candy, costumes and decorations this year – or $86 for every person who plans to celebrate. That includes a <a href="https://www.marketwatch.com/story/americans-are-spending-almost-half-a-billion-on-halloween-costumes-for-their-pets-2019-10-22">half a billion dollars</a> on costumes that Americans are buying for their pets, which is double the amount they spent a decade ago. <a href="https://www.newsweek.com/pet-halloween-costumes-1175283">Pumpkins and hot dogs</a> are the favorites. </p>
<p>How did a holiday that began as a way to honor the dead morph into just another ritual of over-the-top American consumption? As a relatively frugal person who has reused the same Halloween costumes for years, <a href="http://businessmacroeconomics.com/about-the-author/">I found</a> the $86 figure shocking. But I’m hardly the first economist to moan about out-of-control consumerism. </p>
<h2>Day of the decadent</h2>
<p>Halloween <a href="http://acrwebsite.org/volumes/7058/volumes/v17/NA17">started as a Celtic holiday</a> honoring the dead. </p>
<p>It was then <a href="https://www.history.com/topics/halloween/history-of-halloween#section_3">adopted by the Catholic Church as a time to remember</a> saints. One research paper described Halloween as an “<a href="http://www.acrwebsite.org/volumes/7058/volumes/v17/NA-17">evolving American consumption ritual</a>,” but a better description might be an over-the-top spending ritual. </p>
<p>To put the $8.8 billion being spent on Halloween in context, the budget for the <a href="https://www.doi.gov/sites/doi.gov/files/fy2020-nps-justification.pdf">entire National Park Service</a> is only $4 billion. The U.S. spends <a href="https://www.cnbc.com/2015/10/19/the-16-billion-business-of-flu.html">less than $2 billion on flu vaccines</a>.</p>
<p>The $86 average may not give us an accurate look at per-person spending. Only about <a href="https://e.infogram.com/_/pEOFKlmH2iK8jWZik2sb?parent_url=https%3A%2F%2Fnrf.com%2Finsights%2Fholiday-and-seasonal-trends%2Fhalloween%2Fhalloween-data-center&src=embed">two-thirds of respondents</a> to the National Retail Federation’s <a href="https://nrf.com/insights/holiday-and-seasonal-trends/halloween">annual survey of Halloween spending</a> said they were celebrating the holiday. And while some spend nothing, others go overboard. </p>
<p>As just one example, the <a href="https://spectrum.ieee.org/view-from-the-valley/geek-life/tools-toys/tech-stars-open-their-doors-for-a-silicon-valley-halloween">Palo Alto neighborhood where Silicon Valley’s tech stars live</a> is a sight to behold as local moguls try to outdo each other on Halloween decorations, candy and bands. </p>
<p><div data-react-class="InstagramEmbed" data-react-props="{"url":"https://www.instagram.com/p/B4IlrewFE3_/?utm_source=ig_web_copy_link","accessToken":"127105130696839|b4b75090c9688d81dfd245afe6052f20"}"></div></p>
<h2>Why people spend like crazy</h2>
<p>In the late 1890s, an economist named <a href="https://www.econlib.org/library/Enc/bios/Veblen.html">Thorstein Veblen</a> looked at spending in society and wrote an influential book called “<a href="http://moglen.law.columbia.edu/LCS/theoryleisureclass.pdf">The Theory of the Leisure Class</a>,” which explained reasons why people spend. It laid out the idea that some goods and services are bought simply for conspicuous consumption.</p>
<p>Conspicuous consumption is designed to show others you are rich, smart or important. In Veblen’s mind, conspicuous consumption was spending more money on items than they are really worth. Veblen pointed out that people buy homes with rooms that are rarely used, just to show off the owner’s wealth. </p>
<p>If Veblen were writing about the world today, he would probably not focus on real estate. Instead, he might be using examples of people trying to attract attention on <a href="https://www.instagram.com/dogsofinstagram/?hl=en">Instagram by dressing their pets in expensive costumes</a>.</p>
<p>Understanding how much people spend on holidays like Halloween and other activities is important because this shows what society values. And apparently, we value what others can see us consume.</p>
<p>[ <em>Like what you’ve read? Want more?</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=likethis">Sign up for The Conversation’s daily newsletter</a>. ]</p><img src="https://counter.theconversation.com/content/125991/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jay L. Zagorsky does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Halloween is yet another holiday that has become a mere ritual of America’s very conspicuous consumption.Jay L. Zagorsky, Senior Lecturer, Questrom School of Business, Boston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1209312019-09-17T12:50:01Z2019-09-17T12:50:01ZA quarter of US parents are unmarried – and that changes how much they invest in their kids<figure><img src="https://images.theconversation.com/files/291599/original/file-20190909-109962-2r78yq.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Unmarried parents spend, on average, several hundred dollars less on each child annually.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/rear-view-kid-boy-holding-toy-1164198310?src=WqaUwEnzgpJhsachEOPWiQ-1-40">fizkes/Shutterstock.com</a></span></figcaption></figure><p>Family structure in America is <a href="https://www.census.gov/data/tables/2017/demo/families/cps-2017.html">sharply divided by class and race</a>. </p>
<p>While 84% of children whose mothers have a bachelor’s degree or higher-level education live with married parents, only 58% of children whose mothers have a high school degree or less do so. And while 75% of white children live with married parents, just 38% of black children do so.</p>
<p>This family inequality appears to have real consequences for children’s chances in life. Compared with children who grow up in cohabiting or single-parent families, those who grow up with stable married parents generally have better <a href="https://doi.org/10.1177/0003122415592129">health and behavior in childhood</a>, are more likely to <a href="https://doi.org/10.1146/annurev-soc-071312-145704">complete high school</a> and have higher <a href="https://dx.doi.org/10.1007%2Fs13524-017-0564-4">incomes as adults</a>.</p>
<p>Why? Families with different structures parent differently – and that can perpetuate inequality across generations. Children in the U.S. are growing up in an <a href="https://www.nytimes.com/2018/12/25/upshot/the-relentlessness-of-modern-parenting.html">era of “intensive parenting,”</a> with many childhoods filled with piano lessons and private tutors, traveling sports teams and summer camps. While costly, these activities become a <a href="https://doi.org/10.1177/0003122418772034">form of investment by parents</a> that can improve their children’s grades, chances of getting into a selective university and future job opportunities. </p>
<p>The key finding of <a href="https://www.pgpf.org/sites/default/files/US-2050-family-structure-and-parental-investments-economic-resources-commitment-and-inequalities-in-financial-investments-in-children.pdf">our study</a>, presented at the <a href="https://www.asanet.org">American Sociological Association</a>’s annual conference in August, is that family structure plays a role in how much parents spend on their children. </p>
<h2>Gaps in parental investments</h2>
<p><a href="https://scholar.google.com/citations?user=3KgSYjsAAAAJ&hl=en">We</a> <a href="https://scholar.google.com/citations?hl=en&user=2bvUnx0AAAAJ">looked</a> at the spending patterns of more than 37,000 families with children who participated in the <a href="https://www.bls.gov/cex/">Consumer Expenditure Survey</a> between 2003 and 2017. </p>
<p>We focused on three categories of spending on children: child care, schooling and extracurricular activities. </p>
<p>We find married parents spent nearly twice as much – roughly US$700 more per year per child – on these investments in children than cohabiting and single parents spend. When we compare households that are similar in terms of race, education, age and family size, we find married parents still spend roughly $300 more per child.</p>
<p><iframe id="Y3zAe" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/Y3zAe/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>What causes this gap? One explanation is economic. Single-parent households have much <a href="https://www.prb.org/singlemotherfamilies/">lower incomes</a> and <a href="https://doi.org/10.1002/pam.10075">higher rates of poverty</a> compared to married-parent households. </p>
<p>Once we account for these income differences, the gap between single parents and married parents goes away. In fact, if married and single parents had the same incomes, our model predicts single parents would spend slightly more on parental investments. In other words, single parents spend roughly an equivalent percent of their income of their children.</p>
<p>But, income accounts for less than half the difference in spending on children between married parents and unmarried parents who live together. So what else is a factor? </p>
<p>Although it’s more common than ever for unmarried people to live together, these cohabitations are <a href="https://dx.doi.org/10.1007%2Fs13524-013-0270-9">relatively shorter and more likely to dissolve</a> than marriages. </p>
<p>This relationship instability may depress spending on children if parents and partners are <a href="https://dx.doi.org/10.1257%2Fjep.30.2.79">focused on a shorter horizon</a> than other parents. </p>
<p>Cohabiting stepfathers also appear to be <a href="https://doi.org/10.1086/671015">less engaged parents</a> to stepchildren than stepfathers who are married to the child’s mother, which could shape household spending decisions.</p>
<h2>Long-term consequences</h2>
<p>Family structure is an important part of inequality in contemporary America. A growing share of American households with children are <a href="https://www.pewsocialtrends.org/2018/04/25/the-changing-profile-of-unmarried-parents/">single-parent or cohabiting-partner households</a>. </p>
<p><iframe id="7Vgx8" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/7Vgx8/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<p>There’s no simple solution to reducing these spending inequalities, but we think our findings can inform policy in a couple of ways. </p>
<p>Because the disadvantage in single-parent families stems from a lack of economic resources, policies like the <a href="https://pdfs.semanticscholar.org/3612/819b4746a765228b497f8a27b25cc9230446.pdf">earned income tax credit</a>, which provides low-income working families with a refundable tax credit, put money directly in the pockets of single-parent families. This would likely reduce these gaps in parental investments. </p>
<p>However, for unmarried couples with children, the disadvantage in spending isn’t just caused by lower incomes. While one might suggest cohabiters get married, it’s not clear that the commitment to long-term investments in children would necessarily follow. </p>
<p>For the children of cohabiting parents – and for all children – we think that direct public investments in children through policies such as <a href="https://www.nber.org/papers/w22011">increased support for schools</a> and child <a href="https://www.nber.org/papers/w20178">health insurance</a> could reduce inequalities and increase opportunities for children growing up in different types of families.</p><img src="https://counter.theconversation.com/content/120931/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Orestes 'Pat' Hastings received funding to conduct this research from the Peter G. Peterson Foundation and the Ford Foundation.</span></em></p><p class="fine-print"><em><span>Daniel Schneider gratefully acknowledges research funding from NIH, the Russell Sage Foundation, the Robert Wood Johnson Foundation, the WT Grant Foundation, and Tipping Point Community.</span></em></p>Single parents and unmarried parents who live together spend less on their children than married parents.Orestes 'Pat' Hastings, Assistant Professor of Sociology, Colorado State UniversityDaniel Schneider, Assistant Professor of Sociology, University of California, BerkeleyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1223972019-08-26T19:57:56Z2019-08-26T19:57:56Z‘Back yourself’ Treasurer Frydenberg tells business. But it’s not that simple<p>Treasurer Josh Frydenberg’s key message to business in a landmark speech on Monday was “<a href="https://joshfrydenberg.com.au/latest-news/making-our-own-luck-australias-productivity-challenge/">back yourself</a>”.</p>
<p>He said the best way to boost economic growth was to boost productivity, and the best way to do that was for businesses to undertake productivity-enhancing investments.</p>
<blockquote>
<p>My message today for business is to back yourself and use your balance sheet to invest and grow.</p>
<p>With Australian corporates enjoying healthy balance sheets, record low borrowing costs and strong equity market conditions, the question is: are corporates being aggressive enough in the pursuit of growth?</p>
</blockquote>
<p>On Thursday the Bureau of Statistics will release <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/5625.0">investment figures</a> for the three months to June. The trend estimates for the three months to March showed mining investment down 2.8%, manufacturing investment down 4.3%, and other investment up just 0.7%.</p>
<p>According to Frydenberg too many businesses are using funds that would have once invested to buy back their own shares and return capital to their shareholders. </p>
<h2>Why businesses don’t back themselves</h2>
<p>He was effectively alluding to something that had come to notice as far back as the 1980’s and that has fascinated some economists, but mostly those outside the mainstream.</p>
<p>It is the incentive for firms to avoid the difficult and risky search for the long-term returns that can come from expansion and modernisation and instead maximise immediate shareholder value.</p>
<p>To the extent that it inhibits growth, it certainly doesn’t help the economy.</p>
<p>But if his speech was meant to be a piece of moral suasion directed at corporations, I fear it missed the point and might in any case be fruitless.</p>
<p>Decisions about whether to invest come down to views about returns from investments, and they come down to views about likely growth in consumer and business spending. </p>
<h2>Consumers aren’t spending</h2>
<p>Put another way, investing in new capacity is ultimately about whether or not there will be demand for the goods and services that will be produced by the new capacity.</p>
<p>Right now, to state the bleeding obvious, the outlook for spending isn’t particularly rosy. </p>
<p>We’ve sluggish consumer demand, sluggish business demand, and are facing sluggish overseas demand in part because of an impending trade war and in part from a government over-reliant on using the Reserve Bank to stimulate the economy instead of its won spending.</p>
<p>In this sort of climate, I suspect no amount of moral suasion will improve the expected rates of return on investments in new capacity.</p>
<h2>Investment can be counterproductive</h2>
<p>The treasurer is aware that there is a demand problem, as his comments about trade agreements and public sector infrastructure projects indicate.</p>
<p>But in underplaying the need create demand, his calls for investments that boost labour productivity bring with them a potential downside. </p>
<p>Enhanced productivity growth in the absence of sustained improvements in spending is likely to cost jobs or force up unemployment.</p>
<p>Being able to produce more with the same amount of labour means less employment, unless demand is increasing. </p>
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Read more:
<a href="https://theconversation.com/shock-more-investment-isnt-necessarily-better-those-instant-asset-write-offs-are-bad-tax-policy-116509">Shock. More investment isn't necessarily better. Those instant asset write-offs are bad tax policy</a>
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<p>Of course, when demand does take off the economy will need the capacity to meet it, so the concern with productivity enhancing investment is legitimate. But it helps not to have it until it is clear demand is going to take off.</p>
<p>Frydenberg might be leaning to the view that once productivity grows, demand will be taken care of.</p>
<h2>More productivity mightn’t always be good</h2>
<p>It is a popular view; that greater labour productivity (more production per worker) will create the conditions for faster wage growth which will itself boost consumer spending. </p>
<p>Frydenberg set it out at the beginning of his speech. Economic growth was driven by population, productivity and (labour market) participation. </p>
<p>There’s even a view that technological change will itself create jobs and consumer demand. </p>
<p>The counter proposition is that technological change displaces workers and generates technological unemployment.</p>
<p>It’s a debate with real world Australian resonance. If Australian businesses did boost investment as the treasurer wants, the improved productivity that resulted would necessarily generate unemployment unless demand grew alongside it. </p>
<p>The question for us is whether the productivity growth would increase demand in and of itself, or whether the government would need to act to make sure it happened.</p><img src="https://counter.theconversation.com/content/122397/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Graham White does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Investments only makes sense if there are markets for the things those investments will produce. It isn’t clear that there are.Graham White, Associate Professor, School of Economics, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/924712018-03-19T10:38:10Z2018-03-19T10:38:10ZRecent stock market sell-off foreshadows a new Great Recession<figure><img src="https://images.theconversation.com/files/210667/original/file-20180315-104676-j2vnia.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">An ice sculpture titled 'Main Street Meltdown' melts near Wall Street.</span> <span class="attribution"><span class="source">AP Photo/Frank Franklin II</span></span></figcaption></figure><p>In early February, concerns about inflation and rising interest rates sent global financial markets into a frenzy, <a href="https://www.npr.org/sections/thetwo-way/2018/02/05/583325123/stocks-extend-losses-with-dow-dropping-more-than-300-points-at-the-open">prompting the biggest single-day drop</a> ever in the Dow Jones Industrial Average. Stocks have since recovered some of their losses.</p>
<p>A similar episode occurred exactly 10 years earlier, <a href="https://blogs.cfainstitute.org/investor/2017/01/31/the-ars-debacle-the-forgotten-crisis-of-2008/">though few may remember</a>. In February 2008, the failure of an obscure market precipitated a <a href="https://blogs.cfainstitute.org/investor/2017/01/31/the-ars-debacle-the-forgotten-crisis-of-2008/">similar selling frenzy</a>. At the time, this sell-off went mostly unrecognized as a harbinger of something worse because the stock market quickly recovered. </p>
<p>Just as the world shouldn’t have been complacent in 2008, we shouldn’t rest easy today. Both events are proverbial dead canaries in a coal mine. </p>
<p>That’s because they have something else in common. Both stemmed from worries that rising borrowing costs would hurt debt-burdened consumers, the housing market and ultimately the U.S. economy.</p>
<p>Our soon-to-be-published research shows that the same problems that led to the biggest financial market meltdown since the Great Depression are alive and well today. </p>
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<h2>2008’s canary in a coal mine</h2>
<p>In the mid-2000s, the U.S. economy <a href="http://www.washingtonpost.com/wp-dyn/content/article/2007/01/31/AR2007013100422.html?referrer=email">seemed to be riding high</a>, but two key problems lurked below the surface: excessive household debt and a housing bubble.</p>
<p>Part of the first problem was that real, <a href="https://fred.stlouisfed.org/series/MEHOINUSA672N">inflation-adjusted household incomes were actually lower</a> than they had been in the late 1990s. To maintain living standards, Americans took on more debt thanks to <a href="https://fred.stlouisfed.org/series/FEDFUNDS">relatively low borrowing costs</a> and weak underwriting standards among lenders. <a href="https://www.newyorkfed.org/microeconomics/hhdc.html">Total household debt soared</a> more than 50 percent, from a little over US$8 trillion in 2004 to $12.69 trillion by 2008. </p>
<p>That brings us to the second problem. Most of that was mortgage debt. The housing bubble pushed it to the point <a href="http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/son2008.pdf">that it was unsustainable</a> as housing prices outstripped incomes, leading banks to come up with <a href="https://www.theguardian.com/business/2007/sep/30/5">ever creative ways</a> to lend people money they ultimately couldn’t pay back. </p>
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<p>At around the same time, the Federal Reserve began to lift interest rates, from 2004 to 2006, making credit more expensive. This reduced consumer spending as more of households’ falling real incomes went to repay debt, thus <a href="https://fred.stlouisfed.org/series/GDP">slowing economic growth</a> and the housing market. </p>
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<p>To <a href="http://keenomics.s3.amazonaws.com/debtdeflation_media/2007/03/SteveKeenDebtReportNovember2006.pdf">some observers</a>, it was only a matter of time before an economic recession or worse. </p>
<p>Among the first significant signs that things were seriously amiss came from the <a href="http://www.mondaq.com/unitedstates/x/60418/securitization+structured+finance/AuctionRate+Securities+Bidders+Remorse+A+Primer">auction rate securities</a> market, which was worth about $330 billion at its peak in 2008. Auction rate securities are essentially packages of mortgages, student loans and other medium- to long-term debt. Back in 2008, broker dealers held weekly <a href="https://www.investopedia.com/terms/d/dutchauction.asp">Dutch auctions</a> at which these short-term securities changed hands and interest rates were set after a bidding process. <a href="https://www.barrons.com/articles/SB121159302439419325">Credit-rating agencies gave them</a> their <a href="https://www.investopedia.com/terms/a/aaa.asp">super-safe ranking of AAA</a>. </p>
<p>Investors <a href="https://blogs.cfainstitute.org/investor/2017/01/31/the-ars-debacle-the-forgotten-crisis-of-2008/">liked them</a> because they were paid a much higher rate than other short-term securities with AAA ratings. Because they could be sold quickly to investors, borrowers could get loans more easily. </p>
<p>But on Feb. 7, 2008, the <a href="https://fas.org/sgp/crs/misc/RL34672.pdf">market began to seize up</a>. It started when the big investment banks, responsible for ensuring the market had plenty of “liquidity” by purchasing the securities if demand was weak, backed away because a growing number of households couldn’t repay their debts and this was beginning to squeeze their bottom lines. </p>
<p>This spooked investors, who sensed something was wrong. By the end of the month, there were no auctions, and billions of dollars in securities were frozen. The auction rate securities market remains closed to this day. </p>
<p>Within months of its February seizure, the broader market had moved on, as the Dow Jones Index reached the year’s peak by May. Yet the event sent ripples throughout the economy as investors continued to avoid mortgage-related assets. </p>
<p>By September 2008, when investment bank Lehman Brothers collapsed because of problems with these securities, the Great Recession was in full swing. </p>
<h2>Deja vu?</h2>
<p>Fast forward to today. </p>
<p>The economy has mostly recovered from the financial crisis, the <a href="https://data.bls.gov/timeseries/LNS14000000">unemployment rate has dropped</a> from 10 percent in 2009 to 4.1 percent in January and <a href="https://fred.stlouisfed.org/series/MEHOINUSA672N">real median household income surged</a> to a record at the end of 2016. </p>
<p>Good news, right? </p>
<p>Our new research shows that these rosy-looking stats conceal the same two related problems as 10 years ago: excessive consumer debt (relative to income) and unaffordable housing.</p>
<p>First, debt and income. After falling in the aftermath of the Great Recession, debt is once again reaching new highs. Especially worrisome, nonmortgage household debt (student loans and credit cards) has soared at a rapid pace and <a href="https://www.newyorkfed.org/microeconomics/hhdc.html">is now 41 percent above</a> its previous peak in 2008. We estimate that the resulting interest payments on nonmortage household debt have reduced living standards of the typical household by 3.1 percent since 2008. That either lowers consumption or prolongs the vicious cycle of more and more household debt. </p>
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<p>But things are even worse than this. Income data ignore <a href="http://www.pewresearch.org/fact-tank/2017/05/05/its-becoming-more-common-for-young-adults-to-live-at-home-and-for-longer-stretches/">recent demographic shifts</a>, such as more multi-generation households and college students living with their parents longer. We adjusted household income by family size because more people living together requires more money to attain the same living standards. Our data show this has lowered average living standards by 3.3 percent. This is on top of the 3.1 drop due to greater interest payments on nonmortgage debt.</p>
<p>Second, although there is no great housing bubble today, the fundamental problem is the same as 10 years ago – people with average incomes cannot afford to buy and live in an average priced home. Low interest rates helped the housing market recover, but <a href="https://www.usatoday.com/story/money/2017/07/25/u-s-home-prices-reach-record-high-6th-straight-month/507808001">also helped drive prices to record highs</a>. </p>
<p>Just like before the 2008 crisis, incomes <a href="https://www.cnbc.com/2018/03/13/economist-home-prices-are-increasing-twice-as-fast-as-income-growth.html">have not kept pace</a> with home prices. Too many people cannot afford to buy a home. </p>
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<img alt="" src="https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=403&fit=crop&dpr=1 600w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=403&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=403&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=507&fit=crop&dpr=1 754w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=507&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/210997/original/file-20180319-31602-1tgo5lb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=507&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Dark days ahead?</span>
<span class="attribution"><span class="source">Sunny Boy/Shutterstock.com</span></span>
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<h2>Storm clouds brewing</h2>
<p>So what does this all mean? </p>
<p>Home prices and consumer debt are again at record highs, and the Fed has been steadily raising benchmark borrowing costs for over a year now. The central bank <a href="https://www.cnbc.com/2018/01/30/fed-will-be-forced-to-raise-rates-more-rapidly-than-expected-cnbc-fed-survey.html">is expected</a> to accelerate the process because the recent tax cut is likely to cause inflation to rise, requiring the Fed to lift interest rates to cool things down. This will hurt the housing market, pushing more homeowners underwater and making it harder for them to pay their mortgages and repay other debt.</p>
<p>At the same time, incomes have only grown modestly and, as our research shows, average American households have 6 percent to 7 percent less spending power than they did a decade ago, before the global financial system collapsed. Something will have to give. Households can take on more debt to maintain their living standards for a short while, or they can significantly reduce their spending. </p>
<p>In either case, the U.S. economy is primed for another recession. We believe it’s not a question of if. It’s a question of when.</p><img src="https://counter.theconversation.com/content/92471/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The collapse of an obscure corner of the financial market a decade ago foreshadowed the Great Recession. The stock-market swoon in February should offer a similar warning.Steven Pressman, Professor of Economics, Colorado State UniversityRobert H. Scott III, Professor of Economics & Finance, Monmouth UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/927372018-03-05T19:22:01Z2018-03-05T19:22:01ZFace Value: business leaders nervous about consumers spending less and regulation<figure><img src="https://images.theconversation.com/files/208853/original/file-20180305-65511-1h06svd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The glum business sentiment is in sectors related to consumer spending.</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p><em>When Australian companies report results they typically include an outlook statement from the business’ leaders, giving investors some guidance about their expectations for the future. They issue these forward-looking statements with some caution as investors might rely on them, and the law requires that they be based on “reasonable grounds”.</em></p>
<p><em>The Conversation’s <a href="https://theconversation.com/face-value-sentiment-analysis-shows-business-leaders-are-positive-about-the-year-ahead-73904">Face Value</a> uses sentiment analysis to try and determine how Australian business leaders are feeling about the future. This gives us an idea of what might be in store for our economy.</em></p>
<hr>
<p>Business leaders in health and consumer discretionary sectors are feeling less positive about the year ahead because consumers are feeling the pain in the hip pocket, according to our analysis of the outlook of leaders of Australia’s ASX 200 companies. The threat of changes in regulation also features in business leaders’ fears.</p>
<p><a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/6291.0.55.003Nov%202017?OpenDocument">Roughly four out of five</a> Australian workers earn their living from private businesses. So we should care about how Australian business leaders are feeling about the future of their businesses, because it’s our future.</p>
<p>The consumer discretionary sector encompasses industries that tend to be the most sensitive to economic cycles. They include businesses that produce goods like cars, clothes and leisure equipment but also services like hotels, restaurants and media.</p>
<p>Business sentiment in the consumer discretionary sector fell in March 2018 relative to the 2017 September business reporting season - from 0.19 to 0.13; and also compared with March 2017 but by a smaller magnitude. </p>
<p>Companies with lower than average sentiment for the year ahead included retailer Myer (0.05) – no surprise given the ongoing <a href="https://thenewdaily.com.au/money/finance-news/2018/02/14/is-this-the-end-for-myer/">weak performance</a> and takeover speculation; and Nine Entertainment (-0.03), <a href="https://www.sbs.com.au/news/tough-times-loom-for-tv-after-ad-sugar-hit">facing</a> ongoing cost pressures from digital media competition. Also less positive were Skycity Entertainment Group (0.01) and Webjet (-0.02).</p>
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<a href="https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=965&fit=crop&dpr=1 600w, https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=965&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=965&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1213&fit=crop&dpr=1 754w, https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1213&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/208860/original/file-20180305-65541-t4bhgu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1213&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><span class="source">The Conversation</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
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<h2>Tighter household budgets bad for business</h2>
<p>The glum business sentiment is in sectors related to consumer spending. A decline in consumer spending could be because household finances are under pressure from <a href="https://www.rba.gov.au/publications/smp/2018/feb/domestic-economic-conditions.html">slow income growth and wealth</a>. </p>
<p>Slow household income growth is driven by slow wage growth. The wage price index grew by <a href="https://www.rba.gov.au/publications/smp/2018/feb/domestic-economic-conditions.html">2%</a> over the past year, and less on a per hour basis, which means it is barely keeping up with consumer prices. The second factor is the slowing growth in household net wealth due to a slow down in house prices and financial assets.</p>
<p>Similarly, another <a href="https://www.westpac.com.au/content/dam/public/wbc/documents/pdf/aw/economics-research/er20180214BullConsumerSentiment.pdf">consumer sentiment index</a> in Australia declined 2.3% from January to February – the first decline in three months. Part of this may be due to the volatility in global share markets that occurred in the survey week in early February. </p>
<p>This volatility is widely expected to continue and weakening sentiment in the consumer discretionary sector may reflect ongoing uncertainty in household financial wealth.</p>
<h2>Health and consumer spending sectors wary of regulation</h2>
<p>Our analysis shows business sentiment in the health care sector dropped from 0.18 to 0.07 September 2017 to March 2018 and by a smaller magnitude since March 2017. This could reflect business leaders’ ongoing concern about the sustainability of the current health system. </p>
<p>Health business with lower than average sentiment for the year ahead include generic drugs supplier Mayne Pharma (0.01), infection control company Nanosonics (-0.03) and private hospital group Healthscope (0.04).</p>
<p>Private health insurance premiums have increased at <a href="https://theconversation.com/labors-2-cap-on-private-health-insurance-premium-rises-wont-fix-affordability-91232">nearly twice</a> the growth rate of wages over the past. According to a recent <a href="https://www.privatehealthcareaustralia.org.au/wp-content/uploads/Private-Healthcare-Australia-Budget-Submission-2017-18.pdf">survey</a>, 44% of Australians believe the current mix of public and private health systems will not be around in 15 years, and 52% lack confidence that the current public hospital system will still be around in 15 years.</p>
<p>Government regulation is a recurrent theme in business leaders’ statements. For example, diagnostic imaging company Primary Health Care <a href="https://www.asx.com.au/asxpdf/20180216/pdf/43rmkh28vd7245.pdf">notes in its report</a>:</p>
<blockquote>
<p>“…funding pressures will remain for the industry…Australia is at an important juncture in the delivery of health-care services.” </p>
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<p>The private health care funding system is <a href="https://grattan.edu.au/wp-content/uploads/2017/11/MJLH-11.1-McDonald-2017-11-19.pdf">regulated</a> to within an inch of its life in the desperate attempt to shore up its viability. For example, the Private Health Insurance Rebate, Lifetime Health Cover and the Medicare Levy Surcharge are all measures designed to force healthy young people and high income earners to subsidise the health care of others. </p>
<p>But this regulation is not working, judging by <a href="https://www.theguardian.com/business/grogonomics/2018/feb/06/is-private-health-insurance-a-con-the-answer-is-in-the-graphs">declining proportion</a> of young people with private health insurance and the need to <a href="https://theconversation.com/labors-2-cap-on-private-health-insurance-premium-rises-wont-fix-affordability-91232">increase premiums</a> so dramatically. </p>
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<p>We also see regulation mentioned in the reports for the consumer discretionary sector. For example David Attenborough, the managing director and CEO of gambling entertainment <a href="https://www.tabcorp.com.au/TabCorp/media/TabCorp/Media%20Releases/1H18-Results.pdf">giant Tabcorp said</a>:</p>
<blockquote>
<p>“Tabcorp is well placed to compete in the evolving regulatory landscape. This includes the introduction of point of consumption taxes, and restrictions on credit betting, advertising, inducements and live betting.”</p>
</blockquote>
<p>The placement Attenborough refers to may have something to do with the proposed merger with lottery retailer Tatts Group, after <a href="http://www.afr.com/business/gambling/tatts-shareholders-in-big-vote-for-11b-tabcorp-merger-20171212-h030wd">shareholders</a> and the <a href="http://www.abc.net.au/news/2017-11-17/tabcorp-and-tatts-group-merger/9161062">Australian Competition Tribunal</a> approved the move.</p>
<p>However gambling regulation continues to be politically charged as we saw in the fight over pokies in pubs and clubs <a href="https://theconversation.com/factcheck-are-around-5-000-jobs-at-risk-if-pokies-are-removed-from-pubs-and-clubs-in-tasmania-91149">during the Tasmanian state election</a> and are seeing in South Australian <a href="https://theconversation.com/no-pokies-xenophon-goes-for-some-pokies-but-does-his-gambling-policy-go-far-enough-92038">state election race</a>.</p>
<h2>Overall business sentiment not looking bad</h2>
<p>Overall business sentiment is roughly the same as at March 2017 and 2016. Some sectors are higher, such as telecommunication services (up from 0.05 to 0.08), materials (up from 0.07 to 0.11) and information technology (up from 0.13 to 0.23). This is offsetting the weaker sentiment about the year ahead in consumer discretionary, health care and energy. </p>
<p>The overall sentiment level continues to be positive at 0.08. </p>
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<p>Ongoing strong employment growth over the past two years is a likely indicator of this positive sentiment. Overall employment growth of <a href="https://www.rba.gov.au/publications/smp/2018/feb/domestic-economic-conditions.html">3.3%</a> in the past 12 months is about double the growth in the working age population, and the <a href="https://www.rba.gov.au/publications/smp/2017/nov/economic-outlook.html">Reserve Bank</a> expects it to continue to grow faster than the working age population to the end of 2019. </p>
<p>Our analysis also looks at the subjectivity in the statements these businesses make. There’s no significant change in the subjectivity scores compared with last year. This means no increase or decrease in confidence or uncertainty around the sentiment levels.</p>
<p>It will be interesting to see whether sentiment changes over the next six months to the September business results, given the destabilising effects of a range of factors just starting to play out. These factors include stock market volatility, the announcement of US tariff increases, company tax cuts and the probably interest rate rises.</p><img src="https://counter.theconversation.com/content/92737/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ross Guest has previously received funding from the Australian Research Council.</span></em></p><p class="fine-print"><em><span>Ben Hachey is an employee of Red Marker. Ben has received funding from the Australian Research Council, the Capital Markets CRC and Google. He is Secretary of the Australasian Language Technology Association.</span></em></p><p class="fine-print"><em><span>Leonardo dos Santos Pinheiro is an employee of Servian. Leonardo has previously received research funding from Capital Markets CRC. </span></em></p>Business leaders some sectors are feeling less positive about the year ahead because consumers are spending less, according to our analysis of the outlook of leaders of Australia’s ASX 200 companies.Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith UniversityBen Hachey, Honorary Associate, School of Information Technologies, University of SydneyLeonardo dos Santos Pinheiro, PhD candidate, Artificial Intelligence, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/904192018-01-19T23:42:14Z2018-01-19T23:42:14ZWill a federal government shutdown damage the US economy?<figure><img src="https://images.theconversation.com/files/202646/original/file-20180119-110121-1okyu2z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Lincoln Monument was a casualty of the last shutdown, in 2013.</span> <span class="attribution"><span class="source">(AP Photo/Carolyn Kaster</span></span></figcaption></figure><p>The federal government <a href="https://www.nytimes.com/2018/01/19/us/politics/government-shutdown.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=span-ab-top-region&region=top-news&WT.nav=top-news">shut down</a> for the first time in a little more than four years after Republicans and Democrats failed to agree on a last-minute deal to keep funds flowing for another few weeks. </p>
<p>The immediate and <a href="https://www.thebalance.com/government-shutdown-3305683">most visible impact</a> will be in the government’s day-to-day operations. Many departments and offices, like the Department of the Treasury, the Environmental Protection Agency and the Library of Congress, will be closed, and nonessential federal employees across the government would stay home. Families hoping to take their kids to a national park will usually be out of luck in a shutdown, but the Trump administration <a href="http://www.cnn.com/2018/01/18/politics/park-service-government-shutdown/index.html">hopes to keep some of them</a> open. Meanwhile, the men and women who protect our food supply and national security will still be doing their jobs – without pay.</p>
<p>But beyond the individual workers and families affected, could a short or lengthy shutdown affect the broader U.S. economy as well? </p>
<p>Constantine Yannelis, a business professor at New York University, and I examined data from the <a href="https://eml.berkeley.edu/%7Ecle/alluc/Constantine_abstract.pdf">last time the government shut down</a> in 2013 to better understand its impact. </p>
<h2>An economic speed bump</h2>
<p>While a shutdown affects the economy in a number of ways – from delaying business permits and visas to reducing service hours at innumerable agencies – a primary channel through which a shutdown affects the economy is through withheld or foregone pay from federal employees who don’t receive their paychecks. </p>
<p>Since consumer spending makes up a <a href="https://www.thebalance.com/consumer-spending-trends-and-current-statistics-3305916">majority of economic activity</a> in the United States, withholding pay from a large fraction of the workforce can introduce a significant economic speed bump in the short run. </p>
<p>And that’s exactly what we saw in 2013. </p>
<p>Similar to the situation today, a partisan standoff in Congress <a href="https://www.pbs.org/newshour/politics/lessons-from-the-last-time-the-government-shut-down">led to a partial shutdown of the government</a> that lasted a little over two weeks beginning on Oct. 1 of that year.</p>
<p>Well over a million federal employees were affected and didn’t receive a paycheck during the shutdown. Some were furloughed – sent home and told not to do anything related to their job. Those deemed “essential” or “exempted” – such as security personnel screening passengers at airport or border patrol agents – were required to continue working at their jobs, despite no pay at that time. The government eventually paid both groups the money owed them, regardless of whether they worked, after <a href="https://www.npr.org/sections/itsallpolitics/2013/10/16/235442199/how-we-got-here-a-shutdown-timeline">Democrats and Republicans reached</a> an agreement on Oct. 16. </p>
<p>My colleague Yannelis and I sought to understand how households responded by tracking how they behaved in the days leading up to, during and following the shutdown using detailed financial data. </p>
<p>We obtained this anonymized data from a personal finance website where people track their income, expenses, savings and debt. Using the paycheck transaction descriptions, we identified over 60,000 households that contained employees of federal agencies affected by the shutdown. These affected employees included both those who were asked to work without pay and those who were furloughed.</p>
<p>As a comparison group, we also identified over 90,000 households with a member who worked for a state government. That would likely mean they have fairly similar levels of education, experience and financial security, yet their paychecks were unaffected by the shutdown.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/202640/original/file-20180119-110081-q0daov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/202640/original/file-20180119-110081-q0daov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/202640/original/file-20180119-110081-q0daov.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/202640/original/file-20180119-110081-q0daov.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/202640/original/file-20180119-110081-q0daov.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/202640/original/file-20180119-110081-q0daov.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/202640/original/file-20180119-110081-q0daov.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Who will be blamed for a government shutdown?</span>
<span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span>
</figcaption>
</figure>
<h2>Short-term impact on spending</h2>
<p>Our study led to two primary findings. </p>
<p>First, we found that the shutdown led to an immediate decline in average household spending of almost 10 percent. Surprisingly, despite the fact that most federal workers have stable jobs and income sources, they were quick to cut spending on pretty much everything, from restaurants to clothing to electronics, just days after their pay was delayed.</p>
<p>While households with less money in the bank cut their spending by larger amounts, even those with significant resources and easy access to credit reduced their expenditures. </p>
<p>Second, households with a member who was furloughed and required to stay home from work slashed their spending more dramatically – by 15-20 percent, or almost twice as much as the average of those affected. This larger decline reflected the fact that these households suddenly had a lot more time on their hands. Rather than going out to eat or paying for child care for example, they were able to spend more time cooking and watching their own children. </p>
<p>This behavior is what tends to spread the economic effects of a shutdown that affects a slice of the population to a wider group of businesses and individuals. And in regions with substantial numbers of federal workers, these declines in spending can greatly hurt the health of the local economy in the short run. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/202639/original/file-20180119-110094-zxwiwg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/202639/original/file-20180119-110094-zxwiwg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/202639/original/file-20180119-110094-zxwiwg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/202639/original/file-20180119-110094-zxwiwg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/202639/original/file-20180119-110094-zxwiwg.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/202639/original/file-20180119-110094-zxwiwg.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/202639/original/file-20180119-110094-zxwiwg.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Depending on how long the impasse lasts, lawmakers may need to order some pizzas, as they did in 2013.</span>
<span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span>
</figcaption>
</figure>
<h2>Long-term impact?</h2>
<p>Whether or not a shutdown has a longer-term economic impact depends on whether employees are paid their foregone wages after its conclusion – and how long it lasts. </p>
<p>In 2013, the government <a href="https://www.washingtonpost.com/politics/after-past-shutdowns-congress-gave-federal-workers-back-pay-this-time-dont-count-on-it/2013/09/23/a7028e3e-2485-11e3-ad0d-b7c8d2a594b9_story.html">repaid</a> even furloughed workers what they would have earned had the shutdown not happened. </p>
<p>This repayment, essentially increasing the size of their first post-shutdown paychecks, had significant and immediate effects on household spending. A sudden spike in spending occurred in the days after the paychecks were disbursed, largely erasing some of the most dramatic declines in spending during the previous two weeks.</p>
<p>The government has usually paid all its employees, “essential” or not, back pay after other past shutdowns, <a href="https://www.washingtonpost.com/politics/after-past-shutdowns-congress-gave-federal-workers-back-pay-this-time-dont-count-on-it/2013/09/23/a7028e3e-2485-11e3-ad0d-b7c8d2a594b9_story.html?utm_term=.477499b934a9">such as those in the 1990s</a>. While Congress is legally required to pay federal employees who worked during the shutdown, there’s no law requiring the same treatment for nonessential workers. </p>
<p>In addition, the longer the shutdown lasts, the worse its impact. Households might deplete savings or hit their credit card limits as the impasse stretches day after day, giving them additional time to adjust their spending in ways that they could not do with only a few days’ notice. For instance, in 2013, bills like health insurance or tuition payments were largely unaffected. Had that shutdown persisted, households may have started to cut back here as well.</p>
<p>So if Congress refuses to offer furloughed workers back pay and the shutdown lasts weeks rather than days, the economic impact could be severe. </p>
<p>However, if a shutdown is resolved in a relatively short amount of time, with workers being paid back their regular income, the damage would likely be fairly contained.</p><img src="https://counter.theconversation.com/content/90419/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Scott R. Baker does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The 2013 shutdown offers some clues as to what the impact will be now after Republicans and Democrats failed to agree to a short-term spending deal.Scott R. Baker, Assistant Professor of Finance, Northwestern UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/844122017-09-29T12:33:14Z2017-09-29T12:33:14ZWhy you really should start your Christmas shopping now<figure><img src="https://images.theconversation.com/files/187873/original/file-20170927-24225-1f3iwyb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Ding dong merrily on high, the Christmas tills are ringing.</span> <span class="attribution"><span class="source">shutterstock.com</span></span></figcaption></figure><p>It has begun. Shops are – <a href="http://www.liverpoolecho.co.uk/whats-on/shopping/john-lewis-liverpool-opened-christmas-13681148">already</a> – starting to put out their Christmas displays. I can hear many of you groaning already. Who wants to think about Christmas in September, right? </p>
<p>Well, before you get your tinsel in a tangle, you may wish to consider that there are benefits to starting your Christmas shopping early. Especially this year, as the price of many goods have <a href="https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/latest">noticeably increased</a> partially due to inflation. </p>
<p>First and foremost, people make better decisions when they are not in a rush. Even just adding <a href="http://newsroom.cumc.columbia.edu/blog/2014/03/07/ever-slight-delay-improves-decision-making-accuracy/">one second, or less,</a> to the time you take when considering a purchase can help improve the decisions you make. Additional time allows the brain to focus attention on what is most relevant and block out what is not. Hence, you are much less likely to be distracted by an irrelevant in-store display or an online banner. </p>
<p>Finding the perfect gift can be tricky so extra time ensures that you stay focused. This can be the difference between a good and a bad gift. Equally, think about how rushed things can get when you leave your Christmas shopping to the last minute. This often causes stress and can put you in a bad mood. That’s good news for retailers – as negative emotions can lead to <a href="http://journals.sagepub.com/doi/full/10.1111/j.1467-9280.2008.02118.x">increased spending</a> – but bad news for you.</p>
<p>Clearly it is a financial blessing to start early as it can help you source the cheapest options. Let’s face it, Christmas shopping can be expensive – food and presents all add up. Last year the average <a href="http://www.retailresearch.org/shoppingforxmas.php">UK household spent over £800</a>, so it seems sensible to be money conscious. </p>
<h2>Top tips</h2>
<p>Make a budget and stick to it. Spreading costs over a longer time period makes it less likely that you overspend and avoid that dreaded overdraft. Consider buying gifts over Black Friday and Cyber Monday at the end of November – there are usually some bargains to be had. But do stay alert, as you can become too excited by purchasing a potential bargain, so much so that it skews your ability to judge whether it is a good offer.</p>
<p>If possible, avoid making purchases with a card. Consumers generally spend more when making <a href="http://psycnet.apa.org/record/2008-12802-002">card payments than they do if they use cash</a>. This is because people don’t usually feel as if they are actually parting with their money. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/187866/original/file-20170927-24188-1yp0xn9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/187866/original/file-20170927-24188-1yp0xn9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/187866/original/file-20170927-24188-1yp0xn9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/187866/original/file-20170927-24188-1yp0xn9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/187866/original/file-20170927-24188-1yp0xn9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/187866/original/file-20170927-24188-1yp0xn9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/187866/original/file-20170927-24188-1yp0xn9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Avoid the rush.</span>
<span class="attribution"><span class="source">shutterstock.com</span></span>
</figcaption>
</figure>
<p>It is also worth being aware that you are <a href="http://www.tandfonline.com/doi/abs/10.1080/10350330.2011.591996">more prepared to buy products and pay more</a> for them if you touch them while in-store. Christmas displays are often set up in a way that encourages you to pick up the items on display. </p>
<p>So if you really want to control your spending: bring cash and avoid touching products until you have decided what you want, as it will help you make better financial decisions.</p>
<h2>Choices, choices</h2>
<p>As Christmas gets closer, consumers are bombarded with advertising messages and additional displays enticing them to buy. The amount of choice consumers are faced with can actually be an obstacle. In many cases people find it <a href="http://psycnet.apa.org/record/2000-16701-012">difficult to choose</a> a product when faced with such an explosion of choice. </p>
<p>This can lead to people giving up and walking off without having bought anything, forcing them to return at a later date. If the later date happens to be close to Christmas then they are more likely to make a snap decision that may not be so satisfying. But if the later date is still well ahead of Christmas then they will feel less pressured to make a rash purchase, giving more time to get the right present.</p>
<p>For others, being faced with too much choice can lead to an instant <a href="https://academic.oup.com/jcr/article-abstract/30/2/170/1831629">snap decision</a> in a bid to avoid the hassle of going through all the options. These snap decisions can leave you feeling dissatisfied, not to mention wasting money. </p>
<p>The way to deal with a lot of choice is to decide on product preferences before you start your shopping. <a href="http://psycnet.apa.org/record/2003-05568-015">When you have a preference</a> you often pick the first option that fits your preferences and it saves you from having to spend valuable time going through all that is on offer. This also makes you feel happier about what you have bought.</p>
<p>So the moral of this Christmas story is: don’t rush, take your time. If possible use cash and try to have clear criteria for what you want to buy. And try not to get songs, like the following, stuck in your head.</p>
<blockquote>
<p>When you shop, ain’t it thrilling,<br>
Though your nose gets a chilling<br>
But please beware, as it can be dear,<br>
Walking in a winter wonderland.</p>
</blockquote><img src="https://counter.theconversation.com/content/84412/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cathrine Jansson-Boyd does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>It might seem ridiculously early, but you may wish to heed the benefits of starting your Christmas shopping early.Cathrine Jansson-Boyd, Reader in Consumer Psychology, Anglia Ruskin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/794072017-06-14T05:10:15Z2017-06-14T05:10:15ZUncertainty isn’t causing slow economic growth, for now<p>Uncertainty is <a href="http://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0009/2377575/pb2017n01.pdf">widely recognised</a> as a potential drag on economic growth. Workers who become more uncertain about their future wages reduce spending, for example, and business owners uncertain about future government policy hold back on investing. However, <a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12356/abstract">new research</a> from the Reserve Bank of Australia (RBA) shows that uncertainty isn’t responsible for Australia’s <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/5206.0">recent weak economic growth</a>. </p>
<p>But uncertainty could negatively impact the economy in the future, as it <a href="https://people.stanford.edu/nbloom/sites/default/files/qje_bbd.pdf">currently is in America</a>, if governments aren’t clearer about their future policies. </p>
<p>Uncertainty is caused when consumers, business people and policymakers aren’t able to predict changes in any number of things that affect their decision making, such as wages, technology and the economy. An “uncertainty shock” is a sudden increase in uncertainty due to an event with unknown consequences, such as an election or government budget. </p>
<p>Take the 2016 US presidential elections as an example. The consequences of Donald Trump’s election were unknown - what would happen to international trade or the US commitment to climate change protocols? </p>
<p>While this theory is sound, it may not be relevant to understand the booms and busts of Australia. Most of the <a href="http://melbourneinstitute.unimelb.edu.au/__data/assets/pdf_file/0009/2377575/pb2017n01.pdf">research</a> on uncertainty has neglected countries like Australia, perhaps because of the <a href="https://theconversation.com/election-factcheck-qanda-has-australia-had-25-years-of-continuous-economic-growth-60242">solid economic growth since 1992</a>. </p>
<p>Economic growth is now slowing. And spikes in uncertainty <a href="https://people.stanford.edu/nbloom/sites/default/files/jep_uncertainty.pdf">have been found</a> to negatively affect business cycles in several countries. This means we need to understand what part government policy and international events play in the economy. This is the hole the <a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12356/abstract">RBA’s new research</a> is trying to fill.</p>
<h2>Modelling uncertainty</h2>
<p>Given uncertainty is not observable, RBA economist Angus Moore has <a href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12356/abstract">created an index</a> to measure whether uncertainty is increasing or decreasing. The index combines four measures of uncertainty. </p>
<p>The first is keywords (“budget”, “policy” and so on) from newspaper articles. The second is financial indicators (mainly, financial market volatility). The last two measures are the variance in earnings forecasts for ASX 200 companies, and GDP growth forecasts. These last two give us approximations of the uncertainty facing entrepreneurs and the Australian economy more generally. </p>
<p>The result is an Australian economic uncertainty index, ranging from 1986 to 2016.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=414&fit=crop&dpr=1 600w, https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=414&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=414&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=520&fit=crop&dpr=1 754w, https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=520&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/173685/original/file-20170614-8123-bgd1tj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=520&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Australia – Economic Uncertainty Index.</span>
<span class="attribution"><a class="source" href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12356/abstract">Angus Moore, Reserve Bank of Australia</a></span>
</figcaption>
</figure>
<p>The uncertainty index correlates with a variety of events, from domestic ones such as Paul Keating’s <a href="http://www.theage.com.au/comment/twentyfive-years-on-from-the-recession-we-had-to-have-20151201-glc9kn.html">“recession we had to have” speech</a>, to external shocks like the 9/11 terrorist attacks, the <a href="https://theconversation.com/bankings-lehman-lesson-is-that-change-must-be-cultural-18173">Lehman Brothers’ bankruptcy</a> and, more recently, the Brexit vote and the 2016 US presidential election. </p>
<p>Not all big events were found to generate uncertainty, however. The Greek government’s debt restructuring in March 2012, for instance, corresponds to a decrease in the uncertainty index.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=510&fit=crop&dpr=1 754w, https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=510&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/173687/original/file-20170614-19991-15bvf1e.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=510&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Correlation of major events and economic uncertainty.</span>
<span class="attribution"><a class="source" href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12356/abstract">Angus Moore, Reserve Bank of Australia</a></span>
</figcaption>
</figure>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=409&fit=crop&dpr=1 600w, https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=409&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=409&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=514&fit=crop&dpr=1 754w, https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=514&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/173686/original/file-20170614-30107-1asoylg.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=514&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Major events and economic uncertainty.</span>
<span class="attribution"><a class="source" href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12356/abstract">Angus Moore, Reserve Bank of Australia</a></span>
</figcaption>
</figure>
<p>But when we check the relationship between the index and key macroeconomic indicators such as unemployment, the correlation is not as clear. If a hike in uncertainty is one of the reasons behind high unemployment and low growth, unemployment should rise with increasing uncertainty. However, Moore’s research does not show this. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=372&fit=crop&dpr=1 600w, https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=372&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=372&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=468&fit=crop&dpr=1 754w, https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=468&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/173688/original/file-20170614-30097-1891ei7.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=468&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Unemployment and economic uncertainty.</span>
<span class="attribution"><a class="source" href="http://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12356/abstract">Angus Moore, Reserve Bank of Australia</a></span>
</figcaption>
</figure>
<h2>Interpreting the uncertainty index</h2>
<p>To be clear, the research does not claim that uncertainty is unimportant. If the RBA had not cut interest rates in response to high uncertainty, Australia could have experienced a recession. For example, the <a href="http://www.rba.gov.au/statistics/cash-rate/">RBA cut rates from 7.25% to 3%</a> between August 2008 and May 2009, to stimulate Australia’s aggregate demand during the global financial crisis. </p>
<p>Using economic models, Moore found that if uncertainty were to suddenly materialise in a world that had never been hit by an economic shock it would result in lower employment growth, weaker retail sales growth, and a fall in consumer confidence. But the impact is small. </p>
<p>For instance, the reaction of employment growth to a modestly sized shock to uncertainty is estimated to be about one-sixth of a percentage point after four months. This may be due to the prompt response of the RBA, which is assumed to cut the cash rate in response to the heightened uncertainty. </p>
<p>The finding that an uncertainty shock results in only a modest response in the labour market is in line with <a href="https://sites.google.com/site/efremcastelnuovo/UncGoogle_3.pdf?attredirects=0&d=1">recent research conducted at the Melbourne Institute</a>, where economists have compared the effects of an uncertainty shock in the US and in Australia. They have found a comparable increase in uncertainty exerts a much stronger effect on the US unemployment rate than on the Australian one. </p>
<p>Two reasons seem to be behind this difference. First, uncertainty shocks are <a href="http://www.sciencedirect.com/science/article/pii/S0304393214001044">more harmful when an economic system is already weak</a>. When it is experiencing a recession, for example. Second, such shocks are very harmful when a central bank cannot cut interest rates. While the US has experienced both situations in the last two decades, Australia has not. Uncertainty isn’t the cause of our current malaise, it could still pose problems in the future.</p>
<h2>How to avoid the impact of uncertainty</h2>
<p>To avoid the costs of uncertainty, policymakers should actively work to reduce it, by communicating as clearly as possible their policies and future interest rate moves. </p>
<p>This lesson comes from the United States, where the data tells us that uncertainty about economic policies like future government spending and monetary policy decisions <a href="https://people.stanford.edu/nbloom/sites/default/files/qje_bbd.pdf">is a drag on the economy</a>. </p>
<p>If uncertainty builds up anyway, policymakers need to act fast. They should temporarily increase government spending and cut interest rates, to quickly restore confidence and strengthen the demand for consumption and investment. And, again, clearly explain the reason behind such policy moves. There is nothing like a well understood policy to reduce economic policy uncertainty.</p><img src="https://counter.theconversation.com/content/79407/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Efrem Castelnuovo receives funding from the Australian Research Council via the Discovery Grant DP160102281 on "Global Uncertainty". </span></em></p>New research shows uncertainty isn’t the cause of slow economic growth. But that could change if the government isn’t clearer about policies.Efrem Castelnuovo, Principal Research Fellow, Melbourne Institute of Applied Economic and Social Research - Associate Professor, Faculty of Economics and Business, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/688042017-01-08T19:23:04Z2017-01-08T19:23:04ZWhy and how do we measure what consumers feel?<figure><img src="https://images.theconversation.com/files/151156/original/image-20161221-13168-fbalen.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">It's important to know what consumers are thinking and feeling.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p><em>How we track our economy influences everything from government spending and taxes to home lending and business investment. In our series <a href="https://theconversation.com/au/topics/the-way-we-measure-34466">The Way We Measure</a>, we’re taking a close look at economic indicators to better understand what’s going on.</em></p>
<hr>
<p>Consumers are key players in the economy, they purchase goods and services, supply labour and make savings and investment decisions. Hence, their sense of what’s happening in the economy has a flow on effect.</p>
<p>If they feel confident, they might spend a bit extra or go into debt. If they don’t, they won’t leave their job to start a risky venture.</p>
<p>Surveying how consumers feel, then, can provide a useful snapshot of how an economy is faring right now, and in the near future.</p>
<h2>The survey</h2>
<p>The idea that consumer confidence - optimism or pessimism – is important for real activity dates back to the Great Depression and John Maynard Keynes. The <a href="http://www.sca.isr.umich.edu">University of Michigan Survey of Consumers</a> – the first of its kind, was designed in 1946 to track changes in consumer confidence. </p>
<p>The <a href="https://www.melbourneinstitute.com/macro/CASiE/">Australian version</a> of the Michigan survey – the Melbourne Institute Consumer Attitudes, Sentiments and Expectations (CASiE) survey began in March 1973. The sample size comprises 1,200 households and is sorted by age, gender and state so that it is representative of the Australian population. </p>
<p>The CASiE survey contains five core questions. Consumers are asked about:</p>
<ol>
<li>their family finances compared to 12 months ago</li>
<li>their expected family finances in the next 12 months</li>
<li>expected economic conditions in the next 12 months</li>
<li>expected economic conditions in the next five years</li>
<li>whether it is good/bad time to buy major household items. </li>
</ol>
<p>The answers are ordinal, such as “better-off”/“good”, “same”, “worse-off”/“bad” or “don’t know”. </p>
<p>The responses to these five questions are used to construct five component indexes, one for each question. The <a href="Westpac-Melbourne%20Institute%20Consumer%20Sentiment%20Index">Westpac-Melbourne Institute Consumer Sentiment Index</a> is a simple average of these five component indexes. 100 is the neutral mark, a value greater than 100 indicates that optimism outweighs pessimism and vice versa. </p>
<h2>What the survey shows us</h2>
<p>Since its introduction, the Westpac-Melbourne Institute Consumer Sentiment Index has served as a reliable and timely indicator of economic activity in Australia. Swings in consumer sentiment, as displayed in this first chart, have proven valuable in signalling major turning points in the Australian business cycle such as the early 1980s and 1990s recessions.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=303&fit=crop&dpr=1 600w, https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=303&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=303&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=381&fit=crop&dpr=1 754w, https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=381&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/149189/original/image-20161208-31364-hnlzcu.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=381&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Note: Grey areas indicate Australian recessions. Source: Melbourne Institute.</span>
<span class="attribution"><span class="source">Westpac-Melbourne Institute Consumer Sentiment Index</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Importantly the consumer sentiment index embed both coincident and leading information about current and future real economic activity. In particular, the index relating to family finances over the previous 12 months is a timely indicator of changes in real consumption patterns. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=286&fit=crop&dpr=1 600w, https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=286&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=286&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=360&fit=crop&dpr=1 754w, https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=360&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/149191/original/image-20161208-31405-1cufqge.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=360&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Note: Grey areas indicate Australian recessions. Source: Melbourne Institute. Smooth series are defined as 4-quarter moving averages.</span>
<span class="attribution"><span class="source">Index relating to Family Finances last 12 months vs Real Consumption Growth (smoothed series)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>Meanwhile, the expectations index, constructed as an average of three forward-looking components (relating to family finances over the next 12 months, economic conditions over the next 12 months and the next five years), appears to be a reliable indicator of future real activity. For example, it has consistently foreshadowed important changes in Australian labour market conditions.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=322&fit=crop&dpr=1 600w, https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=322&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=322&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=405&fit=crop&dpr=1 754w, https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=405&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/149190/original/image-20161208-31383-d1nd3g.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=405&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Note: Grey areas indicate Australian recessions. Source: Melbourne Institute. Smooth series are defined as 4-quarter moving averages.</span>
<span class="attribution"><span class="source">Expectations Index vs Employment Growth (smoothed series)</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Changes</h2>
<p>Over its long history, the CASiE survey has also evolved gradually to keep up with changes in technology and demographics. Traditional face-to-face interviews were replaced with telephone interviews in the early 1990s and online surveys have been recently introduced to complement telephone ones. </p>
<p>The decreasing cost of internet usage and the increasing influence of personal mobile devices, such as smartphones and tablets, appear to have improved the flow of information. With easier and faster access to news, consumers appear to be more informed about current affairs. </p>
<p>The average proportion of interviewees replying “don’t know” to the five survey questions used to be around 9% during the 1990s and through to the mid-2000s. This proportion, however, has declined gradually since the introduction of smartphones in 2007 and recently has plateaued to around 3%. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=342&fit=crop&dpr=1 600w, https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=342&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=342&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=429&fit=crop&dpr=1 754w, https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=429&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/149192/original/image-20161208-31367-39fkok.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=429&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Note: Vertical lines indicate Australian Federal Elections. Source: Melbourne Institute. Trend series is computed using Hodrick-Prescott filter.</span>
<span class="attribution"><span class="source">Proportion of ‘Don’t Know’ Respondents</span>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>In the future, new innovations and advances in information technology will likely help reduce the cost even more. But increasing the frequency of surveys may not be beneficial as they will likely capture more randomness. Research about how people form expectations suggests consumers tend to update their expectations every six to twelve months and most consumers’ current and future family financial conditions are unlikely to change on a weekly or daily basis. </p>
<p>Over the years, the consumer sentiment index has attracted the attention of policy makers, market economists and academics, mainly because it is a useful signal about future household consumption and saving. Since the household sector is the largest sector in the economy, it is no wonder the Index receives a lot of attention as large swings in consumer confidence are often followed by large swings in real activity.</p><img src="https://counter.theconversation.com/content/68804/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Viet Nguyen does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Economists have been tracking how consumers feel for decades now. But what does it all mean?Viet Nguyen, Senior Research Fellow in Applied Macroeconomics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.