Consumer Spending Heads For The High End

Housing starts and motor-vehicle sales are both stronger than they seem, claims economist Edward S. Hyman of International Strategy & Investment Group Inc. The reason: "People have been buying more expensive homes and cars." Dividing real residential-construction outlays by housing starts, Hyman calculates that the real value of the average start has risen by about 65% since it began a sharp uptrend in late 1983. Similarly, dividing real consumer spending on motor vehicles by unit sales indicates that the average new vehicle is now worth 30% more in real terms than it was a decade ago.

To be sure, the average real values of both housing starts and motor vehicles (cars and light trucks) fell in 1990 and are now appreciably below their pre-recession peaks. But Hyman points out that their downward corrections ended in 1991, and that the real values of both housing starts and vehicles have been in an upward trend for about a year.