Friday, April 29, 2011

Can I Borrow Some Money?

So you want to treat yourself to a little something nice but when the moment arrives it seems you don’t have the money (uh-oh).  Maybe you really did “forget your wallet” or you expected your paycheck to go a bit further (damn taxes).   If this has ever happened to you, don’t worry you’re not alone.  In case you haven’t heard, Americans like to spend (we took a year and a half break in 2008 but we’re back!).  We are so good at spending that our personal spending (called “personal consumption expenditures” or “PCE” for short) makes up about 70% of the value our country generates in a given year (exports on the other hand, where people in other countries foot the bill, make up just 12%).  In other words, your communities are relying mostly on your money to survive!   Last month our spending increased by $61 billion, or 0.6% from what we spent in February.  Certainly you aren’t the only one who wants to be a part of this action yet “forgot” your wallet.  (Some of this increase was due to prices going up as opposed to actually having more stuff, since if we all go to buy more stuff then the increased demand allows stores to increase prices.)  

Every time we go to the store, go out to eat, or fill our cars up with gas we are giving companies the resources they need to cover their expenses (like the salaries of the people who work there) and have some left over, maybe to invest in ways to provide you better service the next time you go there or increase the selection of stuff they provide.  The money in a sense “multiplies” in value as your $1 went to the store, which provided money to the employee, who used it to buy something else and so on.  Our spending (as long as we aren’t spending above our means) helps our communities thrive and grow, creating more wealth for all of us.  That’s why the government gave us a giant “stimulus package” in 2008 – to “stimulate” our economy (our communities) by encouraging spending.

An added bonus:  we also have more money to spend!  Last month the money Americans had available to spend (called “personal disposable income”) increased by $64 billion, or 0.5% of the money we had in our pockets in February.  Over the last year, our spending money increased by almost 3% even after adjusting for price increases (called “real personal disposable income”).  That is 3% more money in your pocket for however you choose to use it!

The next time you’re at happy hour or the movies or wherever you like to go, you should get that extra something even though you didn’t bring enough cash to cover it.  When the bill comes, wow your colleagues with your knowledge on how much their fellow Americans are relying on their spending and that by covering you they are acting as true patriots.   With people like them the recession will be a distant memory in no time!  (You also heard their income is only going up so they should feel comfort in fronting the money.)  Go big or stay home.  It’s the American way.  

(Commerce Dept.)

Thursday, April 28, 2011

Gaga over the Royal Wedding!

Although few outwardly admit it (minus the woman who made the news for quitting her job to attend the royal nuptials), millions of us are fascinated by the royal wedding.  Maybe this woman had the right idea.  Maybe we should consider not only quitting our jobs to go, but also sell our homes and move there.   Why not move there?  After all, they’ve got the royalty and they still knight people.  Who wouldn’t want to be knighted? 
Then it’s settled, we should all sell our houses and move to the UK.  Figures released today show pending home sales jumped 5.1% last month, a good sign in the market, thanks to “increased affordability.”   What are our homes worth these days anyway?   According a widely used housing price indicator, called the “Case-Shiller Index,” average home prices decreased 2.6% in February over last year, decreasing at a faster annual pace than in January.  This is on top of the massive home devaluations that have yet to recover since prices began to drop in 2007.  Hmmm.  On second thought, maybe we should just go for a vacation.  Really, the food and weather aren’t that great anyway.  Plus, who doesn’t like to travel?
This is perfect.  I think we should export ourselves there as tourists and be done with it.  Exports, in the traditional sense of sending goods and services to other countries, are great – they encourage us to produce what we’re good at, which allows us to use our resources better, adding more wealth and jobs to our economy while other countries foot the bill.  That translates into more money to go around for everyone – a higher quality of living.  Tourism is a sizable share of our exports too, about 5% (25% of services exports).  Plus, given the export statistics released today we could use a boost in exports.  Exports only grew by 4.9% so far this year compared to 11.4% at this time last year.  Even with this growth, we as a country continue to sell less stuff abroad than we buy from abroad, landing us with a debt (called a “trade deficit”).  This type of debt isn’t ideal for boosting economic growth, which is why you may recall hearing that President Obama’s goal is to double exports by 2015.  So every export helps!
Okay, that’s not quite how exports work.  We have to provide something to someone abroad and someone abroad has to pay in order for it to count, not the other way around.  Traveling to the U.K is actually a British export and a U.S. import.  The only way our tourism exports could increase from the Royal Wedding would be if the wedding moved to the U.S. and we convinced the British to come here.  But something tells me this is not an option.  We can let this slide this time.  God Save the Queen!   
(Commerce Dept., National Association of Realtors, S&P Case-Shiller HPI)

Wednesday, April 27, 2011

54 Days til Summer (Yay?)

If you’re like me, the first thing on your mind when thinking about summer is planning your summer vacation (assuming you haven’t already).  The first thought is probably your ideal dream vacation - somewhere warm with good food and total relaxation.  Then reality sets in.  “How much can I spend” is usually the second thought you have, perhaps followed by “I think I’m going to indulge in that timeless trend of ‘staying local’…again.”   Not that going anywhere is cheap: over the last year the price increase of transportation services exceeded the nationwide average price increase of all goods (3.7% vs. 2.7%), while the cost of driving your own car around increased by almost 10%.  In 2008 people spent an average 3% of their annual income on travel expenses, and let’s face it after the last few years we all deserve a nice vacation.  So is this year the right time to indulge in a big expense? 
Aside from your personal finances, you might be concerned about where the economy is heading over the next few months.  This question has an easy answer  - what do YOU think?  Literally, to get a good sense of how we might expect the economy to fare in the coming months we should do what we do with many things before we spend – get a second opinion.  In this case, its 3,000 second opinions (pretty good, huh?).  Every month there is an indicator that tells us what our peers think will happen with the economy over the next few months as it relates to jobs, spending, and prices.  Think of it as the economy being put on trial each month with a jury of 3,000 peers. 
This idea of understanding how your peers see their future ability to spend, called “consumer confidence,” can be an informative tool for assessing your own future spending ability.  Because really, who isn’t influenced by their friends?  The fact that it is closely watched by the finance world shows that what people’s expectations are has real influence over the economy.  What YOU think matters!  Generally, if people are confident in the economy they spend a larger share of their income, and in turn the economy grows – like a self-fulfilling prophecy.  In April, consumer confidence increased over March, with confidence remaining positive pretty much over the entire last year.  This means that your peers, located across the nation, believe the economy has and will continue to do well over the coming months.  If you were concerned about spending money because of uncertainty on where the economy was headed, this should help you feel a little better.  
So the next time someone asks if you’re concerned about spending the money to go away this summer you can say you’re confident in where the economy is going – along with 3,000 other people.
(Conference Board, Bureau of Labor Statistics)