On spending, it’s YOLO vs. no-no
Consumers party on, while cautious industries cut back
Companies are cutting back, while consumers are partying on — and fueling the economy.
“Y
OLO,” Danielle Walker said, explaining why she had just spent a chunk of her biweekly $900 paycheck on an adorable outfit — quilted navy vest, cranberry plaid riding pants and knit sweater — from the “equestrian shop” at Janie and Jack, the children’s clothing store in the Mall of America where she works.
“You only live once” also appears to be the motto of many of her customers. “It seems like people are looser with their spending,” said Walker, 25, who lives in nearby Apple Valley, Minn., and has a 5-year-old daughter.
“It’s just amazing how impulsive they are, but then I realize I do it.”
American consumers are energetically engaged in a spendathon. American businesses, by contrast, are not.
Nathan Jeppson, chief of Northwest Hardwoods, a major manufacturer of hardwood lumber, is definitely not in a YOLO mood. He recently canceled a $1.75 million order to buy 19 forklifts for his sawmills and dry-kiln yards.
“We can’t justify that spend without certainty,” said Jeppson, who has watched from his office in Tacoma, Wash., as sales and profits plummeted because of continuing trade discord between the United States and China. “So we’ll go into salvage-andrepair mode till there is.”
His company has also shelved plans for millions of dollars in other equipment purchases and investments. “We cut 80 percent of the capital budget that we anticipated spending,” he said. In addition, 100 of the 1,600member workforce were laid off; another 125 had their hours reduced.
Businesses and households swim in the same economic soup, and their outlooks — gloomy or bright — are usually in sync. But in recent months, the two seem to occupy opposite ends of a teeter-totter, with consumers continuing to spend while business owners and managers are chastened by doubt and uncertainty.
The economic expansion has extended its record run despite this curious divergence. The question is how long it can continue.
“They will catch up with each other,” said Richard Curtin, director of consumer surveys at the University of Michigan. When they do, if consumers are in the lead and businesses respond in kind, the economy will keep growing. If business anxiety spreads to households, the risk of a recession looms.
Among chief executives, persistent trade frictions, worldwide economic weakness and reports of labor shortages are sowing disquiet. A year ago, buoyed by tax cuts and deregulation, company leaders talked about high “animal spirits” to convey the frothy exhilaration that was coursing through their offices.
Now their confidence is at recession-level lows, according to The Conference Board, a nonprofit research group. Investment in equipment, software, research and structures fell by 3 percent in
September, the Commerce Department reported last week, the second monthly reduction in a row.
Consumers have mostly held tight to their optimism. Confidence has dipped slightly in recent months, but their economic outlook remains elevated. Personal spending rose at a 2.9 percent annual rate in the third quarter, after increasing at a 4.6 percent rate in the previous three months.
Consumers are responsible for 70 percent of the country’s economic activity. And at a moment when business investment is shrinking, their spending is pretty much the only thing driving the nation’s growth — an observation that the Federal Reserve chairman, Jerome Powell, made after announcing that the central bank would trim benchmark interest rates to keep the economy from a downhill slide.
To some extent, the mismatch between consumer and business confidence is akin to the parable of the blind men and the elephant: Their descriptions vary wildly because each is touching a different part: the trunk, a tusk or a side.
“They’re responding to different aspects of the economy,” Curtin said. Households are looking at how their family, friends and neighbors are doing, the low unemployment rate and the small, but real increase in incomes.
Other news is largely ignored. In the October consumer survey, 1 in 4 respondents brought up the negative effect of tariffs. Just 2 percent mentioned the impeachment inquiry into President Donald Trump.
At the Mall of America, Charles Barr was feeling flush from his promotion to general manager at Popeye’s and the $200-a-week raise that came with it. Seated outside the restaurant, which overlooks a snaking orange roller coaster, Barr said he splurged on two purchases this year: a used GMC Acadia for $30,000 and a 70-inch television for $900 from Best Buy. “A man is measured by the size of his television,” he said, laughing.
Business managers and executives tend to focus on a wider landscape. Nearly two-thirds of chief executives surveyed by The Conference Board in September talked about the troubling and lasting fallout from the trade war.
“We definitely have a cautious eye on what’s going on,” said Adam Briggs, vice president for sales and marketing at Trans-Matic Manufacturing, a metal stamper in Holland, Michigan, that employs 275 people. He mentioned tariffs, slowing manufacturing and persistent uncertainty.
“We’re definitely taking the same steps as more companies are right now and scrutinizing capital investment,” Briggs said. While “2020 is not going to be 2009,” he added, “most people believe the economy is not going to grow and may shrink a little bit.”