Courtesy of Mish.
The recession ended in mid-2009. Since then spending on services has lagged spending on durable goods by a huge margin.
Why? A record number of Millennials, adults aged 18 to 32, put off household formation and stay at home to live with parents.
Why? No job and/or huge college debt with no way to pay it back.
The jobless rate for Americans aged 18 to 19 years old stood at 19.2%. Unemployment among 20- to 24-year-olds is 11.6 percent. In contrast, the overall unemployment rate is 7%.
Kids Living in Basements a Drag on U.S. Services Spending
Bloomberg reports on the Haircut Deficit, Kids Living in Basements a Drag on U.S. Services Spending.
Consumer spending on services — everything from rents and water bills to health care and haircuts — is a laggard as the economy has recovered from the worst recession since the Great Depression. Such expenditures adjusted for inflation have risen 6.3 percent since mid-2009, compared with a 34 percent surge in outlays on durable goods such as automobiles and appliances, according to data from the Commerce Department in Washington.
Purchases of durable goods have been quicker to recover. Some of the growth is driven by record-low interest rates, supporting auto sales that account for almost a quarter of the increase in spending on long-lasting items. Another contributor is pent-up demand for replacement of aging household goods such as appliances and furniture. Neither force has much effect on purchases of services, which are more likely than durable goods to be paid for in cash.
From 2008 through this year, the annual rise in the number of households has averaged less than 1 percent. That compares with an average year-over-year gain of about 1.7 percent in Census Bureau data going back to 1948.
“If you look at household size, the average number of people per household has gone up,” said Mark Vitner, a senior economist in Charlotte, North Carolina, at Wells Fargo & Co., the biggest U.S. home lender. “Consumption of household services by person has actually gone down because it’s the same amount of space consumed by three people instead of two.”
Millennials — adults aged 18 to 32 — are still slow to set out on their own more than four years after the recession ended, according to an Oct. 18 report by the Pew Research Center in Washington. Just over one in three head their own households, close to a 38-year low set in 2010.
Growing income inequality also may be playing a role, squeezing the take-home pay of those less well-off and forcing them to scrimp on spending, said William Dunkelberg, chief economist of the National Federation of Business.
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