Tuesday, December 17, 2013

Can't Ever Buy Too Many Durable Goods! (Musical Tribute)

The following chart shows the industrial production of durable goods divided by the industrial production of nondurable goods.

Click to enlarge.

Yay! New record! To infinity and beyond!

As seen in the chart, nothing bad ever happens when we buy too many durable goods (dotcom and housing bubble hangovers notwithstanding). It's the first thing they teach us in Central Banking School. When in doubt, buy them out!

Sleep Country USA: Get 36 Months Interest Free Financing!

Have you been dreaming of a new mattress? How about a new mattress AND over 1,000 peaceful nights with interest-free payments?

Yes! I'm sleeping like a baby just thinking about all that interest-free debt!

31 Ways to Get Your Baby to Sleep and Stay Asleep

Sleeping, like eating, is not a state you can force a baby into.

Surely zero interest rate policies can force me to sleep well though. Right?

Best you can do is to create a secure environment that allows sleep to overtake your baby.

Damn. There's no mention of highly speculative environments. Sigh.

Source Data:
St. Louis Fed: Custom Chart


Rob Dawg said...


Nice data series you got there. With a tiny modification to to the relationship you got yourself a reliable recession leading indicator. Full disclosure, the data goes back to 1947. I cut it at 1968 because there are two almost false positives prior to that that are easier to ignore than finesse away.

AllanF said...

I don't get it. Maybe I need to look more closely, but from the chart it looks like coincident half the time, slightly leading half the time, and a false positive, when it does drop below zero, half the time. :)

And it doesn't seem like all that remarkable a data set. In a recession we expect the necessities of life, non-durables, to remain constant while discretionary purchases, durables, drop like a rock. The graph shows that in 2009 people stopped buying cars, washers, dryers, dishwashers, refrigerators, and countertops, like never before. But we already knew this, right?

Seriously (not trying to sound like a sarcastic jerk), but what's significant about the graph?

Sustainable Gains (aka Wisdom Seeker) said...

Referencing Mark's original chart, I think the secular changes starting around 1960 and 1990 are interesting.

Could that be related to pre-engineered lifetimes which take a lot of the "durable" out of "durable" goods?

I'm sensitive to this because we had a washing machine die this fall after 8 years, that should've been good for 20 years. Post-mortem showed that an internal part had been designed to fail. Or at least, not made to last.

Also, Rob and Allen, it's been nice to see you again after I departed CR/HCN some years ago! I also like the leading-indicator chart Rob made, especially because it disagrees with my current outlook.

Stagflationary Mark said...

Rob Dawg (& AllanF),

I'm having some difficulty too. Perhaps I'm not looking closely enough.

Rob Dawg said...

When Durables minus Consumables goes from positive to lower than minus 2% over a quarter a recession is right there waiting. The noisier month over month can then be used when it is a close call.

Stagflationary Mark said...

Sustainable Gains,

Could that be related to pre-engineered lifetimes which take a lot of the "durable" out of "durable" goods?

I think that's probably true to some degree.

Our Kitchenaid dishwasher has a few plastic parts in it that are not dishwasher safe. They dissolved over time. They had the nerve to tell us not use powdered dishwasher detergent. Yeah, right. What a joke!

We replaced the parts ourselves (at no small expense) and continue to use powdered detergent. Many other parts will no doubt fail before those fail again.

The main motor itself failed while still under warranty (thank goodness). In hindsight, they didn't time that one optimally.

Our "durable" couch is already on its last legs. It's fairly obvious where both of us sit on it anyway. Further, our dogs even look at it funny and it scratches. In hindsight, we got what we paid for. It was relatively cheap and built that way.

That said, I think cars are probably more reliable. My '96 Camry still feels relatively new. The car I grew up with really started to rust out by the time my parents handed it down to me (and it had far fewer years on it).

In any event, I hope that the financially stretched first time homebuyers factored in the lifespan of major appliances. It's been about 7 years since the peak. Failing appliances would just add insult to injury.

Rob Dawg said...

The whiplash when new car demand is met will be beyond epic. I don't even think those of us who lived through it grasp the pursuit of quality in the auto industry. I hope the dumb masses never do. I'm loving my '06 V70 2.5t. 4k miles and 95k odometer. Feels almost new. My first car, the family '73 Dodge Dart, was dead car rolling at 60k miles. I grew up with cars good for three years, serviceable for six and parts thereafter.

I don't think I'll ever own a new car. Too many good ones their first owners don't recognize.

Stagflationary Mark said...

Rob Dawg,

The whiplash when new car demand is met will be beyond epic.

As you've said in the past, could be a real "tank slapper". Sigh.

Stagflationary Mark said...

The wobble will be limited to the downside of course. Sigh.

Stagflationary Mark said...

I don't think I'll ever own a new car.

I'm 49. I think I have one more car purchase in me, maybe. That's assuming I live long enough and don't lose my faculties.

Too close to call! ;)

P.S. Seriously. My '96 Camry has less than 90k miles on it and half those miles came in the first 5 years. I'm averaging less than 3k miles per year now. Absolutely no desire to buy a new car. Runs great. Very reliable (knock on wood).

Sustainable Gains (aka Wisdom Seeker) said...

[ Rob, I would love to join your site as well and comment, but I'm not willing to create a Google account and be tracked, just to do so. ]

We're also getting better longevity out of our vehicles, but I've been assuming it was because the '02 and '04 have been in garages and in a nice climate their whole lives, whereas the '93 and previously the '85 had to spend a lot of time outdoors in freezing weather.

This reminds me: The Sherman Antitrust Act and related pro-competition laws need to be better enforced, not in the auto sector but in much of the rest of the economy. There's clearly enough price competition among the various international auto manufacturers (at least for the U.S. market), and also in computers/electronics. But for many other major durables, telecom services, and a wide variety of nondurable products (including TV, Radio and paper-based news!) there are really only a few corporate providers in any given market. (Don't even get me started on healthcare…) Sometimes they are hiding behind myriad brand names (e.g. food products). When you look at the corporate ownership and cross-linkages, the picture is pretty grim. It's clear that pricing power is being abused, and there's also a long history of titans buying up the upstarts, which also has the effect of suppressing competition.

So I think that the U.S. economy might be suffering from a "shortage of competition", with too many sectors dominated by "pricing cartels". That idea has tremendous explanatory power to describe the overall economic situation. When corporations in less-than-competitive industries all push for higher prices (and lower wage expenses) and the result is maximum profits industry-wide, the result is that fewer goods (and services) are produced and sold. Both supply and demand are constrained. As a result, total output is below capacity, which means fewer workers are needed and unemployment stays elevated while median income lags. Tax receipts are reduced, but the government deficit-spends to make up for the demand gap. All of these consequences are observed today.

If this is right, then the cure for the economy as a whole is increased competition, which leads to lower cartel profits in the short term, but then leads to increased employment and a healthier, more prosperous economy overall. When more companies compete to provide goods and services in a given market, they must provide the goods at lower cost and higher quality. With prices being lower, sales rise, and to produce the increased quantities, more people must be employed.

The workers can then afford to purchase more, creating a virtuous loop which results in much greater output and in fact much greater profits in the long run.

I believe I read this argument (in a historical context) in one of J.K. Galbraith's books or essays, although I don't recall which one. The concept goes back at least to Adam Smith, according to the treatment on Wikipedia ( http://en.wikipedia.org/wiki/Competition_law ), although the Neoclassical dogmatists appear to have forgotten the concept.

Stagflationary Mark said...

Sustainable Gains,

Don't even get me started on my Comcast bill. It's like buying a new dishwasher every other month.