Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
The economy is like the weather: Everybody talks about it, but nobody can change it.
Or can we?
This thing we call the economy is actually an accumulation of trillions of marketplace decisions and interactions. Each of us has a minuscule impact on the economy via our personal decisions about investing, spending and how we choose to live and work.
Those individual actions help shape trends that in turn steer the economy.
Here are some interesting facts about trends and activity in the US economy today:
Household formation: Historically, one percent of Americans start a new household every year (out of a total 110 million people) which is equivalent to a little over 1 million new households per year. Since the financial crisis began, that figure has fallen to one-half percent. This means for the past three years more than 500,000 people were essentially moving in with their parents instead of starting homes. Looking at it another way, we have an extra 1.5 million people sitting on the couch at their parents homes instead of living in their own place. That can’t last forever, which means there is pent up demand for housing and everything that comes along with it.
The housing multiplier: For every dollar you spend on residential construction, you end up creating another $1.27 of economic benefit. When you build a house, you also create demand for all sorts of goods and services – everything from furniture, landscaping and security systems to transportation and lunch for the construction crew. So if we do have pent up household formation, this multiplier effect will provide a tremendous tailwind for the economy.
The scrappage of cars: Americans scrap about 16 million cars per year and add about 1.3 new cars for every junked car. During the recession that figure fell to well below one new car for every scrapped vehicle. Not to mention — in the wake of Superstorm Sandy — 650,000 vehicles were sent floating off to the scrap yard. So demand for new cars should continue to improve.
Peak earning/spending for individuals: Consumer spending peaks at around age 50 – about the same time we hit our earnings peak. This makes sense, as it’s the time when years of experience, skill and accumulated seniority are paying off; not to mention college age children are only a few years from being off the payroll. So, if you feel like you are behind the saving curve, I know plenty of families that do the majority of their saving between age 50 and retirement…so it’s never too late to start being a power-saver.
Are you feeling the impact of these trends? How do you see them changing in the near future?
– Wes Moss, for AJC Atlanta Bargain Hunter blog