Americans Long Overdue to Replace JFK-Era Durable GoodsMichelle Jamrisko
Americans have been holding on to their wobbly washing machines and sagging sofas even longer than their grandparents did 50 years ago, setting the stage for a rebound in consumer spending as old household goods wear out.
The average age of consumer durable goods -- long-lasting items such as furniture, appliances and computers -- is the highest since 1962, according to data from the Bureau of Economic Analysis dating to 1925. Among things Americans are keeping for the longest time: jewelry and wristwatches and home and garden tools like lawnmowers.
Replacement purchases, overdue after the worst recession since the Great Depression, would boost the consumer spending that accounts for 70 percent of the economy. Automobile sales are headed for their best year since 2007, showing Americans have the financial security to buy more expensive items, and economists say that means household-goods sales will pick up.
Such purchases are “postpone-able for only so long,” said John Silvia, chief economist for Wells Fargo Securities LLC in Charlotte, North Carolina, the biggest U.S. mortgage lender. Increases in home values, along with gains in consumer confidence, incomes and employment from recessionary lows, make “people sense it’s worth putting money back into that house” with purchases such as appliances, he said.
Cars and luggage were the only two of 17 categories the BEA tracks that saw a decrease in average age in 2012, according to the data released Nov. 14. The average age of jewelry was 5.3 years, the oldest since 1942, while that of home and garden tools was 5.1 years, the highest since 1961. The categories include products that typically last at least three years.
The data show a replacement cycle that started in the post-World War II era as people moved to the suburbs and made purchases to set up their households, said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC in New York.
The average age of goods rises during an economic downturn, and “towards the middle of an expansion, you tend to see these numbers start to come down, and that means people are buying more stuff,” said Dutta, who projects durables purchases will pick up next year.
Appliance maker Whirlpool Corp. of Benton Harbor, Michigan, expects bigger gains in 2014 from people replacing aging goods, Bob Bergeth, the company’s general manager of national contract builder sales, said in a telephone interview. “There is quite a bit of pent-up demand,” he said.
“People who have lived with one burner or two burners on their stove that have been working now feel more secure in their job outlook and employment and even wage increases,” Bergeth said. “They’re increasingly coming back into the market and replacing that range.”
Manufacturing in the U.S. accelerated in November at the fastest pace in more than two years as companies boosted production to keep up with growing orders, figures from the Institute for Supply Management showed yesterday.
Steven Orlikowski, a software developer in Houston, said he’s ready to replace the five-year-old computer he’s been getting along with since he “rediscovered thrift” after losing his job in 2009.
The 36-year-old, who has since found a new job, said he’s shopping this week to take advantage of holiday discounting.
“I’ve got to replace it, because that one is pretty much dead in the water,” he said. “I’m in a good position right now” to make more expensive purchases.
A jump in household durable-goods demand would help lift U.S. growth that is little changed from last year’s 2 percent average annualized rate. Gross domestic product expanded at a 2.1 percent rate so far in 2013 and 2.3 percent since the recession ended in June 2009.
Consumer spending in the three months ended September rose at the slowest pace since 2011. That reflected the weakest gain in four years in expenditures for services such as haircuts or consulting and doesn’t mean Americans aren’t willing to make lasting purchases, Dutta said.
Rising property values and sustained home sales in the face of climbing mortgage rates give businesses such as Lowe’s Cos. confidence that consumers have only started to swap out old household goods.
There is “an emerging willingness among consumers to finally replace items that are worn or outdated or to make significant enhancements to their homes,” Gregory Bridgeford, chief customer officer at the second-largest U.S. home-improvement retailer, said on a Nov. 20 earnings call.
Even so, “it’s a slow build,” he said.
One reason: Consumers are reluctant to take on more debt after the recession forced them to clean up their finances.
Household debt as a share of income was 92.2 percent last quarter, a decade low and down from its peak of 114 percent in 2009. The debt-service ratio, which measures how much income is devoted to paying off obligations, has also steadied after dropping last year to a record low.
Thirty-six percent of consumers listed keeping current on bills as their top financial priority, according to a Bankrate.com survey conducted Nov. 7-10. Twenty percent prioritized paying down debt and 18 percent said they were most concerned with saving money.
Revolving debt, which includes credit-card spending, shrank by $2.1 billion in September, the fourth straight month of declines and the longest such stretch in almost three years, according to Federal Reserve data. Non-revolving credit, which includes financing for college tuition and autos, increased $15.8 billion.
Those figures show consumers are less likely to run up credit-card balances with casual expenditures such as movie tickets or restaurant meals, Silvia said. That doesn’t mean they’ll continue to put off major purchases, he said.
“A number of people will have to come back and say OK, I’ve postponed this now for three to five years, we really need to get it done,” Silvia said.
If so, they may find financing more readily available as banks ease standards for consumer loans. Among 70 banks polled for the Federal Reserve’s quarterly senior loan officers’ survey in October, all said credit standards for consumer loan approvals were either unchanged or had eased somewhat. All 65 banks who responded specifically about approving auto loans also said the standards had stayed the same or loosened.
Cars and light trucks sold at a 15.2 million annualized rate in October, the 12th consecutive month above the 15-million mark for the longest streak since February 2008. The rise has supported companies such as Fort Lauderdale, Florida-based AutoNation Inc., the largest U.S. retailer of cars and trucks.
“The auto-credit environment remains strong,” Chief Executive Officer Michael J. Jackson said on an Oct. 24 earnings call. Further sales gains are “dependent upon the fundamental strength of the economic recovery in the U.S. and whether the employment picture has significantly improved from what it is today.”