We believe we are the
consumers, but we really are the consumed. ~ Bryant H. McGill
What group has the most at
stake in virtually all of the laws and regulations now being either considered
or changed by the president and his Republican-controlled Congress? This assemblage
of Americans is the most numerous and broadest of any group, but probably
doesn’t immediately come to mind as an answer to the question. It is consumers;
the millions of individuals and households who every day buy goods and services
in every market in the US. Consumers run our economy. But we don’t get any
respect.
Last week Congress managed
save some face by rescuing itself – and spared consumers from inevitable harm –
from yet another government shutdown and passed a Continuing Resolution (CR) for
funding through September 30, the end of the federal government’s fiscal year.
It’s a very low bar to surmount – to keep
the federal government actually operating – but somehow this do-nothing
Congress succeeded. Thank goodness for small favors. The largest single loser
from the CR was the president, who didn’t get a dime for building his wall nor
get reductions in funding of agencies like the National Institutes of Health.
Astonishingly, the CR also prevented Attorney General Jeff Sessions from
interfering with marijuana policy provisions of the 44 states that have already
passed medical marijuana laws. Who would have guessed?
Yet the media stories about
the CR never mentioned American consumers as winners for having the government
stay in business. Instead, despite the vast importance of consumers in this
country, stories like this one
mentioned distinct, individual groups like coal miners and Planned Parenthood
as winners who were spared the fiscal axe that the president and many
Republicans wanted to sway their way, not consumers.
As we already know from
personal experience, we are a nation of consumers. Personal consumption
expenditures (PCE) drive our GDP and make up the single largest component, 68.6%,
of our top-ranked GDP. PCE has grown gradually over the past 30 years, as shown
in the figure below from the St. Louis Federal Reserve Bank. Most recently, the
BEA reported
that during the last quarter (2017Q2) PCE had increased a dismal 0.23%.
Consumer purchases of durable goods – those lasting 3 years or longer (like
appliances, furnishings and cars) – decreased
0.19%. This softness in consumer spending is in large part why the latest,
annualized real (inflation-adjusted) GDP growth was a dreary 0.7%. Given his
usual denials of economic reality, I expect the president labelled this fact as
“fake news.”
Personal Consumption Expenditures
as a percent of GDP, 1984-2013
The chart below shows the US
share of GDP from PCE tops the list when compared to other large nations. Notice
that as a share of China’s GDP, the world’s second-largest, Chinese consumer
expenditures just account for about one-half of the US share. Yes, we certainly
know how to shop.
Source: CIA
World Factbook
How many consumers are there
in the US? Surprisingly, it’s not a straightforward question to answer despite the
importance of consumption in our economy. Using several sources, I determined there
are about 249 million adult consumers in the US, including you and me. Our per
capita average annual consumption is now $40,326.
Per capita consumption has increased only 1.7% in real terms since the end of
the Great Recession.
How are we consumers doing? The
Federal Reserve’s apt actions to hold inflation in check have clearly benefited
consumers. In some ways consuming in the US has never been better. There are
more goods and services being marketed to us than ever before. When I was last
at the grocery store, I counted an amazing 167 different types of pasta sauce on
the shelves! 5/5/17 at the Park &
Pay/Safeway
The
following table illustrates how we consumers have been doing during the decades
from 1950 until 2015, relative to average salary-based purchasing power for 3
staples of modern consumption; a gallon of gasoline, a new car and a loaf of bread.
The national average annual salary is taken from the Social Security
Administration’s national average wage index. I’ve examined how much work time, based
on average salary, it has taken to buy these items over this period.
Consumer Welfare during the Past
6 Decades
Year
|
Average Annual Salary*
|
Price of Gasoline (1 gal.)
|
Minutes to Purchase
Gasoline
|
Price of New Car
|
Hours to Purchase
Car
|
Price of Bread (Loaf)
|
Minutes to Purchase
Bread
|
1950
|
$2,643
|
$0.18
|
8.5 min.
|
$1,510
|
1,189 hrs.
|
$0.12
|
5.7 min.
|
1980
|
$12,513
|
$1.19
|
11.9
|
$7,210
|
1,198
|
$0.50
|
5.0
|
2010
|
$41,674
|
$2.96
|
8.9
|
$27,950
|
1,395
|
$1.41
|
4.2
|
2015
|
$48,099
|
$2.40
|
6.2
|
$33,543
|
1,445
|
$1.44
|
3.7
|
Sources: Social Security Administration,
AAA, KBB, thepeoplehistory.com, infoplease.com, BLS
*Calculated from the national
average wage index (AWI).
As shown,
consumers in 2015 can buy a gallon of gas for 23% less time than in 1950, and about
50% less time than in 1980 (when OPEC was not exporting petroleum to the US for
the second time), due principally to the rise in average salary during these
decades. Unlike gasoline and bread, the time needed to buy a new car has risen.
Through the 1950 to 2015 time frame consumers have needed to spend 21.5% more hours
to buy a new car. It’s worth remembering the quality and capabilities of the “average”
new car have vastly improved since 1950, much more than either gasoline or
bread. And speaking of dough, recent consumers have definitely benefited when
buying a loaf of bread. In 2015 we had to work 65% fewer minutes to buy the
bread than in 1950.
Our near-term prospects as
consumers, however, are quite mixed due to the Trump administration’s strong
anti-consumer bent. Politicians and policy-makers invariably pledge allegiance
to consumers and our interests, but it’s fleeting and illusory. Rarely do they
offer any improvement in consumer wellbeing. In effect, we’re so numerous we’re taken for
granted.
Consumers represent a very
broad and diverse group of citizens. In contrast, “special interests” are exceedingly
narrow and much deeper. Politicians spend far more time and effort satisfying
these better-defined special interests than inclusive consumers.
Citizens do not march on
Washington, or elsewhere, as identified consumers. Whenever we march it’s as
worried scientists, as people concerned about environmental or other specific
policies. Such marches and public assemblies carry considerable weight and
should continue, but consumerist sentiments are never at the forefront of these
actions, except when we’re pushing a grocery cart down the actual or electronic
aisles.
This is a large part of the
illusion connected with consumers. As consumers we’re essential for the health
and growth of our economy, but rarely important when policies that affect us
(and virtually all of them do in some way) are considered by the federal, state
or local governments. Usually we are seen just as a source of tax revenue. In a
grand irony, consumers are too numerous to be politically acknowledged. Not one of the $11,645,680,000,000 dollar
“votes” that we consumers spent
in March 2017 gets counted when this administration formulates economic, health
and social policies that affect us all. We are illusory ciphers.
The House of Representative’s
passage of the Republicans’ new health care legislation this week will impose
higher costs and more restrictions for virtually all US health care consumers. For Republicans, this legislation isn't ultimately about health care at all, it's about reducing taxes for the rich. President Trump’s and Republicans’ pledge to weaken and
eliminate the Consumer Finance Protection Bureau, begun in 2011 via the
Dodd-Frank Act, typifies their anti-consumer views.
The president’s policy pronouncements
regarding international trade will directly and indirectly increase the price
of a vast array of consumer goods sold in America. First, let’s look at his
proposed tariffs on Mexican imports into the US; then his annunciated 45%
tariff on Chinese imports to the US.
The president has said he
wants either a 20% or a 35% tariff (depending on what else is going on in his
jumbled, “untrained”
mind) on imports from Mexico to pay for his Wall. In 2015, Mexico exported $295
billion (B) worth of goods into the US, including vegetables and fruit (avocados, tomatoes,
peppers, lemons, watermelons and mangoes), beer (Corona, Dos Equis, Pacifico, Modelo),
electronic equipment and machinery, and cars and trucks (Toyota, Ford,
Chevrolet, Honda, VW, Nissan and Ram trucks). One US Congressman said consumer
prices of Mexican goods subject to such tariffs could increase by 20%. How’s
them (more expensive) avocados, Coronas and Fords for you John and Jane America.
Illustrating the president’s
inability to connect the economic dots, such a tariff would be paid in varying
degrees by US consumers of Mexican imports, not Mexican producers. It is worth
noting that Mexican-made automobiles and trucks, its most valuable import to
the US ($75.2B in 2016), are 40% comprised of US-made parts. If such tariffs
are imposed it could threaten some of the 6
million US jobs that depend on trade with Mexico according to the US
Chamber of Commerce. Mexico has already stated such tariffs will provoke it to purchase corn and other agricultural products ($18B US exports in 2016) and US electrical
and other manufactured machinery ($83B) from other nations and/or impose retaliatory
tariffs on US exports. Shades of the Smoot-Hawley Tariff Act that induced international
trade wars in the 1930s and intensified the Great Depression. Maybe the
president is thinking Andrew Jackson should have considered it to avoid the Depression.
If the president’s suggested
45% tariff on Chinese imports is actually enacted, similar though larger
negative consequences would ensue for US consumers because the tariff is higher
and the imports are greater. In 2015, China’s imports into
the US totaled $483.2B, almost twice as large as Mexico’s. China’s imports,
ordered in descending value, include electronic equipment (cellphones,
computers, printers), machinery, furniture, toys/games, footwear and clothing. By
value, China is the source of 75% of cellphones and 93% of tablets or laptops
shipped into the US.
A 45% tariff on Chinese-made
goods could drive up US retail prices on those goods by an average of about 10%,
according to Capital Economics. Consumers would find it hard to escape these
price increases. "There are few alternative sources for the main products
the US buys from China," says Mark
Williams, Capital Economics' chief Asia economist. China would also retaliate
with their own tariffs on US products, as they did in 2009 when the Obama
administration imposed levies
on automobile tires imported from China. China imposed a tariff
on US chicken (including chicken feet) exports. The US tire tariffs didn’t bring
back domestic tire industry employment, but did allow manufacturers to raise
their prices when US consumers bought them.
President Trump purports to
be interested in increasing blue-collar jobs, but his tariffs will increase the
prices of goods that far more blue-collared workers and other consumers regularly buy,
all in the name of his Wall and “fairness.” Tariffs may possibly be good
politics, but they are poor economics for the majority of customers because they raise consumer
prices and potentially reduce jobs dependent on US exports.
Customers will be consumed by
higher costs to buy health care, food, cars and trucks, clothing, electronics and
other key items of modern life, courtesy of the Trump administration. The
president has yet to support consumers with his scattershot, inconsistent
policies. He’s firmly on the side of private, moneyed interests. His policies
are all about consumer illusion and falling discretionary incomes. President
Trump’s anti-consumerist policies won’t make America any greater again for our
249 million adult consumers, just more expensive and less healthy.
