Consumer spending make up about 70 percent of the economy, but lately those consumers have been feeling, well, under the weather.
That's what economists Atif Mian and Amir Sufi found when they looked at why sales have sagged the past few months. Now, it could have been that we just had another false dawn, and the latest slowdown was more in our heads—and initial estimates—than anything else. But as anyone who's been outside can tell you, it also could have been that the arctic air, yes, put a freeze on economic activity. Mian and Sufi decided to test this by breaking down car sales geographically. And, as you can see below, they found that the states that had the atypically lowest temperatures had the lowest sales growth in January, too.
It's hard to sell a car when people try to avoid going outside.
So will sales heat up as the weather does? Well, a bit. The polar vortexes made people put off purchases and nights out that they'll probably make up for now. But there'll be an even bigger boost to spending if consumers go back to doing what they did before the crash: taking on more debt.
That's already starting. And it's not just student loans. It's also subprime auto loans, which went from 18 percent of the total in 2009 to 27 percent in 2013. It's a building bullishness that's a little reminiscent of the housing bubble days. It's things like advising people to take out home equity loans to buy stocks with (a terrible bit of advice that's since been deleted). Of course, it's nowhere near the kind of exuberance, rational or otherwise, that we saw in the late 1990s and 2000s. But it is a sign that people are getting their animal spirits back. They're starting to worry about missing the boom more than avoiding the bust.
The question is whether enthusiastic markets can drag consumers with them. Or whether debt will keep weighing down the real economy while the financial economy soars. This recovery has had so many headfakes, where it's looked like growth was about to pick up only not to, that it's hard not to be cynical. But this time really might be different—if things just warm up a little bit.