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Americans' 'YOLO' spending spree baffles economists

63 points by safaa1993 3y ago

mainpassathome 3y ago
economists when people aren’t rational economic actors: shocked pikachu face
- astrange 3y ago
  That's not what rational expectations means, it's just a way of saying things are priced in, so that if the price of eggs went up there is probably a good reason for it and it doesn't mean you can go and start an egg business to compete on lower prices. https://someunpleasant.substack.com/p/economists-do-they-know-things-what https://someunpleasant.substack.com/p/economists-do-they-kno...
- dragonwriter 3y ago
  > economists when people aren’t rational economic actors This is more "economist selectively chosen by media that is trying to sell a downturn narrative when people don't act like there is an economic downturn when aggregate economic measures also don't show a downturn [...]" Heck, even the article linked to support "people have drawn down their savings" in this article says notes of the reduced savings rate trend, "When the economy is good — like now, with the unemployment rate seemingly pinned below 4%, or back in the mid-2000s — people are more willing to operate with low levels of savings, because they're confident they're going to keep receiving a paycheck." People aren't acting like there is a downturn because there isn't a downturn and media that is trying to sell a narrative about there being a downturn and the economists they select to respond are acting shocked that no one is acting like it is a downturn and using that to somehow sell the narrative that its even worse than if it was a downturn where people were acting normally for a downturn.
gmerc 3y ago
[flagged]
jdlyga 3y ago
The efficient market hypothesis taken down another peg
- deleted 3y ago
  [deleted]
- quickthrower2 3y ago
  Stay solvent people!
MisterBastahrd 3y ago
The United States has $1.08T cumulative credit card debt. Somehow, we've managed to give trillions away to business owners for fucking up their own finances, but individuals should be left to rot in the sun under insanely usurious rates. I'm not saying it's right. I'm just saying that the only reason that one set of bad decisions gets alleviated and the other one doesn't is because of who donates what. Wiping out that balance would also obliterate a lot of retail banks.
- astrange 3y ago
  The US does not have historically high credit card debts right now, and it isn't particularly high relative to incomes either. I think part of it might be that credit cards added planning features that have guaranteed fees to compete with BNPLs.
  - sp332 3y ago
    Isn't the US at record high levels of credit card debt right now?
    - astrange 3y ago
      Not relative to income/GDP, which is how you'd know what can actually be paid off. https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N There was an uptick in failure to pay credit card bills recently (don't have a graph) but that just means it went from "unusually low" to "same as 2019".
      - devwastaken 3y ago
        GDP calculations in the U.S. are not relevant to debt holders. It would be like saying everyone in the U.S. is wealthy when it's the top 1% that own the vast majority of that wealth.
        astrange 3y ago
jfengel 3y ago
I'm surprised they're surprised. Inflation makes people want to buy things before they get more expensive. Even if inflation cools prices will never be this low, and savings will be worth less tomorrow than today. Seems like reasonable behavior to me.
- cced 3y ago
  Are we in the ‘it’s time to start worrying’ phase? When you think about this more and more often, which I personally am, what types of discussions should we start having?
  - Aloha 3y ago
    I dont think so. I've been hearing that it's a time to worry for over 20 years, thru three major once in a lifetime events. If none of those were a time to worry, I dont see why this is.
    - CapstanRoller 3y ago
      Sounds like survivorship bias. All those events had an impact on someone. They destroyed many lives and set back countless others. It can happen to you, unless you continue your lucky streak or your continued survival was/is due to wealth.
      - Aloha 3y ago
        I mean, maybe? If the weatherman is consistently wrong, is it me who is experiencing different weather wrong, or the guy who made the prediction in the first place?
        CapstanRoller 3y ago
        "Huh? What flooding?" asks the man comfortably lounging on a yacht, as millions of regular folks get swept away by the rushing water.
chasd00 3y ago
Sentiment will always be pessimistic because optimism doesn’t trend on social media. Consumer sentiment isn’t meaningful in the social media era.
- dragonwriter 3y ago
  Headline measures (like the overall consumer confidence index, or even the two major components of it), don't tell you much (the current situation portion tells you the same story as other broad economic indicators, the future expectations portion has been pure noise for a very long time.) I think some of the detailed components (current family situation and 6-month family expectation, for instance) do have some signal and are less a reflection of (social or other) media noise.
libraryatnight 3y ago
Retail therapy!
quickthrower2 3y ago
What if much Black Friday spending is buying stuff cheaper they would have needed anyway? That would be in line with a frugal outlook. People being savvy consumers.
- nytesky 3y ago
  Yeah I got an $80 Chromebook because my kids are breaking one semi annually. Don’t need it now, but there will be a night when they need on and theirs is DOA. Expiring 2029 will get them to college, so buying now seemed worthwhile.
dragonwriter 3y ago
> This "YOLO" attitude towards money bucks the spending trends of past economic downturns The 5.1% annualized GDP growth rate last quarter also bucks the trends of past economic downturns. If neither aggregate output nor consumer behavior are acting like a downturn, maybe the thing that should be surprising is the description that there is an "economic downturn".
- MattGaiser 3y ago
  Indeed. The idea of an economic downtown almost seems to be one of sentiment rather than any data. Wages are up above inflation. Asset prices are strong. Job market is strong. Inflation is dropping. Consumer spending is strong. Other than inflation currently being a bit above target, which numbers are people unhappy about?
  - Whoppertime 3y ago
    The Month over Month inflation may be low, but since 2020 it's been 20%, and suffice to say a majority of the working population has not gotten a 20% wage increase since then
    - pie420 3y ago
      Everyone I know who has changed jobs has gotten 30%+ raises in my circle. Very few people I know still work where they worked in 2019. The few that do are either very poor, or very wealthy. In the modern economy, you don't get raises anymore, you get a new job every 2-3 years. Anyone who is upset that they haven't gotten raises to keep up with inflation has only themselves to blame.
  - Fluorescence 3y ago
    I don't see debt being mentioned and I wonder how much economic activity is shuffling debt around e.g. if someone buys a car with credit but can't keep up with payments so has to sell it at a loss, it probably looks great on economic dashboards - two cars have been sold! In real life, it really sucked though. A side note - I am a little wary at how frequently economic figures have been revised recently. It makes suspicious when people are surprised at good news that seems to go against sentiment. I fear that in a couple of years time, the Fed might discover Dave's spreadsheet included December twice or something.
demosthanos 3y ago
> "If 18 months ago, you'd have said the Federal Reserve Bank could raise interest rates by 500 basis points, and the consumer would chug on, relatively unfazed, I would have been extremely surprised," says Ellie Henderson, an economist at UK-based, global bank Investec. "I'd have said, 'that's just not how economics works'." Economics is such a funny field to me. The systems involved are incredibly complex, yet economists habitually speak as though their models are anything more than that: models. Somehow we got into a place where policy is made on the explicit assumption that the Federal Reserve Bank is in possession of a mystical lever, a single number that they can change to steer the behavior of more than 300 million people. As a layperson, it's incredibly obvious that interest rates are but a single variable in an enormously complex equation that we have no hope of recreating in a spreadsheet, but somehow that comes as a surprise to the professionals.
- jonathankoren 3y ago
  >Economics is such a funny field to me. The systems involved are incredibly complex, yet economists habitually speak as though their models are anything more than that: models. It’s funny that you bring this up, because this idea that the the power brokers forgot that their models were simplistic models of human behavior instead now thought of them as full, bidirectional descriptions of behavior is the thesis of many Adam Curtis documentaries. I’m thinking about the The Trap in particular.
- c_o_n_v_e_x 3y ago
  There's a whole line of thinking in the Austrian school of economics that consumers cannot be accurately modelled.
- FabHK 3y ago
  Arguably, the more people, the better you can model aggregates. Just as with the gas equation - it works because there are so many molecules that individual idiosyncrasies are smoothed out. And, so, yes, there have been regularities observed (that make theoretical sense, also); and when those break down, that is worthy of note and investigation. You can't just point to "oh, it's people", rather you should try to figure out what's systematically different this time.
nytesky 3y ago
I have two questions. BNPL seem to be about 4 weeks — isn’t that about the grace period for a paid off credit card? If anything I thinking you charge at the beginning of a cycle, you get 7 weeks? Am I misunderstanding? I heard on Planet Money how consumer sentiment is down in the Michigan survey, and I am really wondering if there is a bias in how the survey is run. With caller id and modern cell phones, I imagine there are pretty big demographic bias in who will willingly participate in a survey, and I suspect their outlook will dominate and may not be representative of the populace? Do they have a realistic way to collect reliable data in modern era?
- damiankennedy 3y ago
  yep, 55 days on some cards and no, these surveys are as reliable as the ones before elections, same with other modern democracies
- vharuck 3y ago
  >With caller id and modern cell phones, I imagine there are pretty big demographic bias in who will willingly participate in a survey, and I suspect their outlook will dominate and may not be representative of the populace? Do they have a realistic way to collect reliable data in modern era? All well-run surveys will apply weights to responses when calculating rates so the results reflect what would be if the participants were a "perfectly distributed" sampling across groups. The article links to another article[0] for the consumer sentiment survey. The linked article says this: >Methodology >Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,000 U.S. adults. The margin of error for total respondents is +/-2.43 percentage points. Fieldwork was undertaken between September 28 – October 6, 2023. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results. 2000 isn't a bad sample size for the basic analysis done. But I wish they'd include errors when comparing subgroups. Some of these differences are probably not statistically significant. YouGov draws participants from a pool of people who've already been recruited and tracked[1]. I haven't found a good explanation of how they recruit or retain them, and don't feel like spending much more time on it. There's one last red flag with the survey quoted in the Bank Rate, and it qualifies for my rule of thumb to ignore the article: the survey is not linked. I'd be happy with just the methodology, executive summary, and technical notes. Otherwise, I assume anyone quoting a survey they could but won't share isn't being totally honest. [0]https://www.bankrate.com/personal-finance/biden-economy-and-personal-finances-survey/ https://www.bankrate.com/personal-finance/biden-economy-and-... [1]https://yougov.co.uk/about/panel https://yougov.co.uk/about/panel
paxys 3y ago
Credit cards and BNPL are the new subprime mortgage. Yeah the economy is great while everyone is spending like there's no tomorrow, but there will be a time soon enough when it'll be obvious that the trillions of dollars in consumer debt we have racked up simply aren't getting paid back.
sdenton4 3y ago
Tell me why I'm wrong... The federal interest rate applies to loans, so the main first order effect for consumers is via mortgage rates and car loans. However, home sales are low because prices have been sticky despite the higher interest rates, leading to far fewer sales as people can't afford the higher mortgage costs. Meanwhile, people who already own houses are completely insulated from mortgage rate changes. So, consumer spending is relatively insulated from first order effects of the federal interest rate, especially for existing homeowners.
- sdenton4 3y ago
  (also seems kinda weird to measure this with black Friday sales... Which could simply be an indicator of people trying to get further with the money they have by spending less during non sale periods. But I assume there's more evidence than what's at the top of the article.)
  - Aloha 3y ago
    Do people actually wait for black friday to buy a house?!
    - sdenton4 3y ago
      No, but consumer spending on black Friday is the top-line metric reported in the article. And my point is that not spending on houses (combined with the bonus of fixed rate mortgages for those who got them before the rate hikes) means there's more cash around for so called "Yolo" expenditures.
    - fostware 3y ago
      No, however, Australian housing rent prices are now higher than mortgage repayments in some areas due to housing availability. Also, those who have paid off their house, have been profligate during the recent sales. The timing are co-incidental, but the media loves mixing correlation and causation.
- battery_glasses 3y ago
Aloha 3y ago
Anyone who went thru went felt like a life changing (and life challenging) event, like the pandemic, is not going to behave in the same way people used to (before they had those experiences). Because of social media, and the media - people felt, quite acutely - the very real risks of COVID - basically people felt (with some truth) that they were lucky to escape the pandemic alive, and because of this, are acting in a YOLO way - you saw people behave the same way 100 years ago from the combined effects of the 1918 Flu Pandemic and World War 1 - all over the world, but particularly in the United States. I dont think we're really fundamentally understanding the real world psychological effects of the Pandemic and the psychological effects of feeling like we were living in an emergency for 18-24 months - and I think it'll likely take a decade or more to really analyze and process this.
- salynchnew 3y ago
  Underrated comment. You hear constantly about how people in the USA who went through the Great Depression became lifelong hoarders, etc. The idea that folks who went through a massive global pandemic (which, unlike the Spanish Flu, was liberally reported on in the media) wouldn't realize that their life is short and act accordingly is... funny.
  - coffeebeqn 3y ago
    I mean the next 20 decades weren’t great for Europe after the Spanish flu. Hope it’s not that
    - Aloha 3y ago
      America had a boom then, and arguably so did europe in culture at least certainly. That said, much of europes economic generation, was the flower of whole nations youths being stolen by flanders fields - either literally in death or psychologically. Nevermind the social and political upheavals seen in around half of europe from WWI - Britain which escaped more unfazed than most of europe from physical damage, still had a mix of cataclysmic change and steady social progress (unwinding of the values and cultural norms of the victorian/edwardian era) - and also suffered vast amounts of deaths. National identities were formed too, Australia, Canada and New Zealand all or in part formed their national identities out of the cataclysm of WW I. This doesn't even account for the new nations formed all over Europe, The Middle East, and Africa because of The Great War.
jrflowers 3y ago
I love being an economist and waking up in a sweat in the middle of the night to a terrifying riddle: “given the base points situation, how do they still decide to pay rent”
nine_zeros 3y ago
Anecdotally, my non-tech peer group have a booming economy thanks to the Inflation Reduction Act, Infrastructure Act, and Chips Act. Business owners are seeing orders go through the roof which they attribute to booming manufacturing, trades and retail. They don't believe it when I say tech is in recession (or at least laying off/reducing headcount).
- nradov 3y ago
  This is exactly it. Factory construction is booming. https://www.wsj.com/articles/americas-factory-building-boom-93dfb8f5 https://www.wsj.com/articles/americas-factory-building-boom-...
jmyeet 3y ago
My theory is the two underlying causes are: 1. Inflation benefits spending now. What you want is only getting more expensive. Also, any debt you have is having its real value reduced without you having to do anything so why pay it off? and 2. Despair. For a lot of people, they're struggling to make ends meet. There is no concept of saving for the future or even being able to retire. For an increasing number of people the stability of home ownership is increasingly out of reach. The retirement plan for these people is simply to die in debt. Plus people think about their mortality when you go through a pandemic where over a million Americans died and there was massive disruption to people's lives. The real spending power of people has also been eaten away by the rising cost of necessities (which the article mentions).
- satvikpendem 3y ago
  > There is no concept of saving for the future or even being able to retire. This kind of attitude cause such events to transpire, truly ironic.
- vitehozonage 3y ago
  Agreed. I dont think im alone in feeling like the future world wont be something i want to live in at all. The future and present seems so incredibly dark to me. I see no motivation to be saving with a long-term perspective. Savings and asset can be taken from me or evaporate, but what i experience right now cannot be.
baazaa 3y ago
The massive generational redistribution of wealth means that naturally the interest-rate consumer spending link has changed. Before higher interest rates meant boomers had less to spend after their mortgage, now it means they have more to spend from returns on their investments.
mensetmanusman 3y ago
Someone has to keep the game of musical chairs going!
lamontcg 3y ago
The question to start asking, pretty soon, is if the booming economy means that the Fed is going to have to raise rates and step on the brake pedal even harder? Pretty soon sentiment is likely to shift towards "good news is bad news" if inflation starts to tick up again. Everyone is talking about how hiring is good and people are spending all kinds of money, that means more money chasing goods, which is going to be inflationary. Again. And we know what the Fed's views are on inflation. Meanwhile CMBS continues to slowly melt down as loans hit maturity dates and fail to pay off and debt service triples on them. Distressed office loans have increased from 3% a year ago to over 10.5% now. And across the economy, all the bad bets of the ZIRP era are finally getting stress tested.
smeagull 3y ago
If you know that you're never going to save enough for a house, then you no longer have an incentive to save long-term.
ac130kz 3y ago
Moloko's "Time is Now" was playing in my head during this Black Friday.
friend_and_foe 3y ago
I can tell you why. The same reason everyone blows their paychecks as soon as humanly possible in Venezuela. Prices go up slow enough but faster than they used to, people slow down their spending because times are tight. Prices go up fast enough, people spend their money before it is worth less than it is right now. I'm not surprised it baffles economists. Economists are mostly just finance analysts nowadays.
doc_shekt 3y ago
There's no drive to save for the future of you feel like there's no future.
_nalply 3y ago
Let's say the inconvenient truth: Our ship is sinking. Let's party as long it's going good. Let's party like there's no tomorrow.

63 points by safaa1993 3y ago

mainpassathome 3y ago

economists when people aren’t rational economic actors: shocked pikachu face

astrange 3y ago
That's not what rational expectations means, it's just a way of saying things are priced in, so that if the price of eggs went up there is probably a good reason for it and it doesn't mean you can go and start an egg business to compete on lower prices. https://someunpleasant.substack.com/p/economists-do-they-know-things-what https://someunpleasant.substack.com/p/economists-do-they-kno...
dragonwriter 3y ago
> economists when people aren’t rational economic actors This is more "economist selectively chosen by media that is trying to sell a downturn narrative when people don't act like there is an economic downturn when aggregate economic measures also don't show a downturn [...]" Heck, even the article linked to support "people have drawn down their savings" in this article says notes of the reduced savings rate trend, "When the economy is good — like now, with the unemployment rate seemingly pinned below 4%, or back in the mid-2000s — people are more willing to operate with low levels of savings, because they're confident they're going to keep receiving a paycheck." People aren't acting like there is a downturn because there isn't a downturn and media that is trying to sell a narrative about there being a downturn and the economists they select to respond are acting shocked that no one is acting like it is a downturn and using that to somehow sell the narrative that its even worse than if it was a downturn where people were acting normally for a downturn.

gmerc 3y ago

[flagged]

jdlyga 3y ago

The efficient market hypothesis taken down another peg

deleted 3y ago
[deleted]
quickthrower2 3y ago
Stay solvent people!

MisterBastahrd 3y ago

The United States has $1.08T cumulative credit card debt. Somehow, we've managed to give trillions away to business owners for fucking up their own finances, but individuals should be left to rot in the sun under insanely usurious rates. I'm not saying it's right. I'm just saying that the only reason that one set of bad decisions gets alleviated and the other one doesn't is because of who donates what. Wiping out that balance would also obliterate a lot of retail banks.

astrange 3y ago
The US does not have historically high credit card debts right now, and it isn't particularly high relative to incomes either. I think part of it might be that credit cards added planning features that have guaranteed fees to compete with BNPLs.
- sp332 3y ago
  Isn't the US at record high levels of credit card debt right now?
  - astrange 3y ago
    Not relative to income/GDP, which is how you'd know what can actually be paid off. https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N There was an uptick in failure to pay credit card bills recently (don't have a graph) but that just means it went from "unusually low" to "same as 2019".
    - devwastaken 3y ago
      GDP calculations in the U.S. are not relevant to debt holders. It would be like saying everyone in the U.S. is wealthy when it's the top 1% that own the vast majority of that wealth.
      - astrange 3y ago

jfengel 3y ago

I'm surprised they're surprised. Inflation makes people want to buy things before they get more expensive. Even if inflation cools prices will never be this low, and savings will be worth less tomorrow than today. Seems like reasonable behavior to me.

cced 3y ago
Are we in the ‘it’s time to start worrying’ phase? When you think about this more and more often, which I personally am, what types of discussions should we start having?
- Aloha 3y ago
  I dont think so. I've been hearing that it's a time to worry for over 20 years, thru three major once in a lifetime events. If none of those were a time to worry, I dont see why this is.
  - CapstanRoller 3y ago
    Sounds like survivorship bias. All those events had an impact on someone. They destroyed many lives and set back countless others. It can happen to you, unless you continue your lucky streak or your continued survival was/is due to wealth.
    - Aloha 3y ago
      I mean, maybe? If the weatherman is consistently wrong, is it me who is experiencing different weather wrong, or the guy who made the prediction in the first place?
      - CapstanRoller 3y ago
        "Huh? What flooding?" asks the man comfortably lounging on a yacht, as millions of regular folks get swept away by the rushing water.

chasd00 3y ago

Sentiment will always be pessimistic because optimism doesn’t trend on social media. Consumer sentiment isn’t meaningful in the social media era.

dragonwriter 3y ago
Headline measures (like the overall consumer confidence index, or even the two major components of it), don't tell you much (the current situation portion tells you the same story as other broad economic indicators, the future expectations portion has been pure noise for a very long time.) I think some of the detailed components (current family situation and 6-month family expectation, for instance) do have some signal and are less a reflection of (social or other) media noise.

libraryatnight 3y ago

Retail therapy!

quickthrower2 3y ago

What if much Black Friday spending is buying stuff cheaper they would have needed anyway? That would be in line with a frugal outlook. People being savvy consumers.

nytesky 3y ago
Yeah I got an $80 Chromebook because my kids are breaking one semi annually. Don’t need it now, but there will be a night when they need on and theirs is DOA. Expiring 2029 will get them to college, so buying now seemed worthwhile.

dragonwriter 3y ago

> This "YOLO" attitude towards money bucks the spending trends of past economic downturns The 5.1% annualized GDP growth rate last quarter also bucks the trends of past economic downturns. If neither aggregate output nor consumer behavior are acting like a downturn, maybe the thing that should be surprising is the description that there is an "economic downturn".

MattGaiser 3y ago
Indeed. The idea of an economic downtown almost seems to be one of sentiment rather than any data. Wages are up above inflation. Asset prices are strong. Job market is strong. Inflation is dropping. Consumer spending is strong. Other than inflation currently being a bit above target, which numbers are people unhappy about?
- Whoppertime 3y ago
  The Month over Month inflation may be low, but since 2020 it's been 20%, and suffice to say a majority of the working population has not gotten a 20% wage increase since then
  - pie420 3y ago
    Everyone I know who has changed jobs has gotten 30%+ raises in my circle. Very few people I know still work where they worked in 2019. The few that do are either very poor, or very wealthy. In the modern economy, you don't get raises anymore, you get a new job every 2-3 years. Anyone who is upset that they haven't gotten raises to keep up with inflation has only themselves to blame.
- Fluorescence 3y ago
  I don't see debt being mentioned and I wonder how much economic activity is shuffling debt around e.g. if someone buys a car with credit but can't keep up with payments so has to sell it at a loss, it probably looks great on economic dashboards - two cars have been sold! In real life, it really sucked though. A side note - I am a little wary at how frequently economic figures have been revised recently. It makes suspicious when people are surprised at good news that seems to go against sentiment. I fear that in a couple of years time, the Fed might discover Dave's spreadsheet included December twice or something.

demosthanos 3y ago

> "If 18 months ago, you'd have said the Federal Reserve Bank could raise interest rates by 500 basis points, and the consumer would chug on, relatively unfazed, I would have been extremely surprised," says Ellie Henderson, an economist at UK-based, global bank Investec. "I'd have said, 'that's just not how economics works'." Economics is such a funny field to me. The systems involved are incredibly complex, yet economists habitually speak as though their models are anything more than that: models. Somehow we got into a place where policy is made on the explicit assumption that the Federal Reserve Bank is in possession of a mystical lever, a single number that they can change to steer the behavior of more than 300 million people. As a layperson, it's incredibly obvious that interest rates are but a single variable in an enormously complex equation that we have no hope of recreating in a spreadsheet, but somehow that comes as a surprise to the professionals.

jonathankoren 3y ago
>Economics is such a funny field to me. The systems involved are incredibly complex, yet economists habitually speak as though their models are anything more than that: models. It’s funny that you bring this up, because this idea that the the power brokers forgot that their models were simplistic models of human behavior instead now thought of them as full, bidirectional descriptions of behavior is the thesis of many Adam Curtis documentaries. I’m thinking about the The Trap in particular.
c_o_n_v_e_x 3y ago
There's a whole line of thinking in the Austrian school of economics that consumers cannot be accurately modelled.
FabHK 3y ago
Arguably, the more people, the better you can model aggregates. Just as with the gas equation - it works because there are so many molecules that individual idiosyncrasies are smoothed out. And, so, yes, there have been regularities observed (that make theoretical sense, also); and when those break down, that is worthy of note and investigation. You can't just point to "oh, it's people", rather you should try to figure out what's systematically different this time.

nytesky 3y ago

I have two questions. BNPL seem to be about 4 weeks — isn’t that about the grace period for a paid off credit card? If anything I thinking you charge at the beginning of a cycle, you get 7 weeks? Am I misunderstanding? I heard on Planet Money how consumer sentiment is down in the Michigan survey, and I am really wondering if there is a bias in how the survey is run. With caller id and modern cell phones, I imagine there are pretty big demographic bias in who will willingly participate in a survey, and I suspect their outlook will dominate and may not be representative of the populace? Do they have a realistic way to collect reliable data in modern era?

damiankennedy 3y ago
yep, 55 days on some cards and no, these surveys are as reliable as the ones before elections, same with other modern democracies
vharuck 3y ago
>With caller id and modern cell phones, I imagine there are pretty big demographic bias in who will willingly participate in a survey, and I suspect their outlook will dominate and may not be representative of the populace? Do they have a realistic way to collect reliable data in modern era? All well-run surveys will apply weights to responses when calculating rates so the results reflect what would be if the participants were a "perfectly distributed" sampling across groups. The article links to another article[0] for the consumer sentiment survey. The linked article says this: >Methodology >Bankrate commissioned YouGov Plc to conduct the survey. All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 2,000 U.S. adults. The margin of error for total respondents is +/-2.43 percentage points. Fieldwork was undertaken between September 28 – October 6, 2023. The survey was carried out online and meets rigorous quality standards. It employed a non-probability-based sample using both quotas upfront during collection and then a weighting scheme on the back end designed and proven to provide nationally representative results. 2000 isn't a bad sample size for the basic analysis done. But I wish they'd include errors when comparing subgroups. Some of these differences are probably not statistically significant. YouGov draws participants from a pool of people who've already been recruited and tracked[1]. I haven't found a good explanation of how they recruit or retain them, and don't feel like spending much more time on it. There's one last red flag with the survey quoted in the Bank Rate, and it qualifies for my rule of thumb to ignore the article: the survey is not linked. I'd be happy with just the methodology, executive summary, and technical notes. Otherwise, I assume anyone quoting a survey they could but won't share isn't being totally honest. [0]https://www.bankrate.com/personal-finance/biden-economy-and-personal-finances-survey/ https://www.bankrate.com/personal-finance/biden-economy-and-... [1]https://yougov.co.uk/about/panel https://yougov.co.uk/about/panel

paxys 3y ago

Credit cards and BNPL are the new subprime mortgage. Yeah the economy is great while everyone is spending like there's no tomorrow, but there will be a time soon enough when it'll be obvious that the trillions of dollars in consumer debt we have racked up simply aren't getting paid back.

sdenton4 3y ago

Tell me why I'm wrong... The federal interest rate applies to loans, so the main first order effect for consumers is via mortgage rates and car loans. However, home sales are low because prices have been sticky despite the higher interest rates, leading to far fewer sales as people can't afford the higher mortgage costs. Meanwhile, people who already own houses are completely insulated from mortgage rate changes. So, consumer spending is relatively insulated from first order effects of the federal interest rate, especially for existing homeowners.

sdenton4 3y ago
(also seems kinda weird to measure this with black Friday sales... Which could simply be an indicator of people trying to get further with the money they have by spending less during non sale periods. But I assume there's more evidence than what's at the top of the article.)
- Aloha 3y ago
  Do people actually wait for black friday to buy a house?!
  - sdenton4 3y ago
    No, but consumer spending on black Friday is the top-line metric reported in the article. And my point is that not spending on houses (combined with the bonus of fixed rate mortgages for those who got them before the rate hikes) means there's more cash around for so called "Yolo" expenditures.
  - fostware 3y ago
    No, however, Australian housing rent prices are now higher than mortgage repayments in some areas due to housing availability. Also, those who have paid off their house, have been profligate during the recent sales. The timing are co-incidental, but the media loves mixing correlation and causation.
battery_glasses 3y ago

Aloha 3y ago

Anyone who went thru went felt like a life changing (and life challenging) event, like the pandemic, is not going to behave in the same way people used to (before they had those experiences). Because of social media, and the media - people felt, quite acutely - the very real risks of COVID - basically people felt (with some truth) that they were lucky to escape the pandemic alive, and because of this, are acting in a YOLO way - you saw people behave the same way 100 years ago from the combined effects of the 1918 Flu Pandemic and World War 1 - all over the world, but particularly in the United States. I dont think we're really fundamentally understanding the real world psychological effects of the Pandemic and the psychological effects of feeling like we were living in an emergency for 18-24 months - and I think it'll likely take a decade or more to really analyze and process this.

salynchnew 3y ago
Underrated comment. You hear constantly about how people in the USA who went through the Great Depression became lifelong hoarders, etc. The idea that folks who went through a massive global pandemic (which, unlike the Spanish Flu, was liberally reported on in the media) wouldn't realize that their life is short and act accordingly is... funny.
- coffeebeqn 3y ago
  I mean the next 20 decades weren’t great for Europe after the Spanish flu. Hope it’s not that
  - Aloha 3y ago
    America had a boom then, and arguably so did europe in culture at least certainly. That said, much of europes economic generation, was the flower of whole nations youths being stolen by flanders fields - either literally in death or psychologically. Nevermind the social and political upheavals seen in around half of europe from WWI - Britain which escaped more unfazed than most of europe from physical damage, still had a mix of cataclysmic change and steady social progress (unwinding of the values and cultural norms of the victorian/edwardian era) - and also suffered vast amounts of deaths. National identities were formed too, Australia, Canada and New Zealand all or in part formed their national identities out of the cataclysm of WW I. This doesn't even account for the new nations formed all over Europe, The Middle East, and Africa because of The Great War.

jrflowers 3y ago

I love being an economist and waking up in a sweat in the middle of the night to a terrifying riddle: “given the base points situation, how do they still decide to pay rent”

nine_zeros 3y ago

Anecdotally, my non-tech peer group have a booming economy thanks to the Inflation Reduction Act, Infrastructure Act, and Chips Act. Business owners are seeing orders go through the roof which they attribute to booming manufacturing, trades and retail. They don't believe it when I say tech is in recession (or at least laying off/reducing headcount).

nradov 3y ago
This is exactly it. Factory construction is booming. https://www.wsj.com/articles/americas-factory-building-boom-93dfb8f5 https://www.wsj.com/articles/americas-factory-building-boom-...

jmyeet 3y ago

My theory is the two underlying causes are: 1. Inflation benefits spending now. What you want is only getting more expensive. Also, any debt you have is having its real value reduced without you having to do anything so why pay it off? and 2. Despair. For a lot of people, they're struggling to make ends meet. There is no concept of saving for the future or even being able to retire. For an increasing number of people the stability of home ownership is increasingly out of reach. The retirement plan for these people is simply to die in debt. Plus people think about their mortality when you go through a pandemic where over a million Americans died and there was massive disruption to people's lives. The real spending power of people has also been eaten away by the rising cost of necessities (which the article mentions).

satvikpendem 3y ago
> There is no concept of saving for the future or even being able to retire. This kind of attitude cause such events to transpire, truly ironic.
vitehozonage 3y ago
Agreed. I dont think im alone in feeling like the future world wont be something i want to live in at all. The future and present seems so incredibly dark to me. I see no motivation to be saving with a long-term perspective. Savings and asset can be taken from me or evaporate, but what i experience right now cannot be.

baazaa 3y ago

The massive generational redistribution of wealth means that naturally the interest-rate consumer spending link has changed. Before higher interest rates meant boomers had less to spend after their mortgage, now it means they have more to spend from returns on their investments.

mensetmanusman 3y ago

Someone has to keep the game of musical chairs going!

lamontcg 3y ago

The question to start asking, pretty soon, is if the booming economy means that the Fed is going to have to raise rates and step on the brake pedal even harder? Pretty soon sentiment is likely to shift towards "good news is bad news" if inflation starts to tick up again. Everyone is talking about how hiring is good and people are spending all kinds of money, that means more money chasing goods, which is going to be inflationary. Again. And we know what the Fed's views are on inflation. Meanwhile CMBS continues to slowly melt down as loans hit maturity dates and fail to pay off and debt service triples on them. Distressed office loans have increased from 3% a year ago to over 10.5% now. And across the economy, all the bad bets of the ZIRP era are finally getting stress tested.

smeagull 3y ago

If you know that you're never going to save enough for a house, then you no longer have an incentive to save long-term.

ac130kz 3y ago

Moloko's "Time is Now" was playing in my head during this Black Friday.

friend_and_foe 3y ago

I can tell you why. The same reason everyone blows their paychecks as soon as humanly possible in Venezuela. Prices go up slow enough but faster than they used to, people slow down their spending because times are tight. Prices go up fast enough, people spend their money before it is worth less than it is right now. I'm not surprised it baffles economists. Economists are mostly just finance analysts nowadays.

doc_shekt 3y ago

There's no drive to save for the future of you feel like there's no future.

_nalply 3y ago

Let's say the inconvenient truth: Our ship is sinking. Let's party as long it's going good. Let's party like there's no tomorrow.