Is there a consumer spending bubble?

“In 2008 we found out consumers were buying houses they couldn’t afford. In 2019 it looks as though consumers are spending money they can’t afford to spend.”

- Spoken by a skeptic in a Manhattan coffee shop

When asked to explain what he meant by “spending money they can’t afford to spend”. He let out a sigh and explained “just because you got the money doesn’t mean you can afford to spend it.” He took another sip of the espresso (his 3rd btw) and said “if you’re not saving your money, someone else is.”

He’s an old school business man with long thinning grey hair, his contempt for the younger generation spending $8 on a coffee wasn’t something he made any attempt to hide. He spoke of how the culture was being shaped by lifestyle marketing and the young generation was falling for it. “Everyone seems to think that spending over 80% of your annual income to keep up with this billboard lifestyle is normal.” Looking around it was almost shocking to see how evident his point was. No one owned anything that wasn’t name brand or a boutique purchase. This is Manhattan but still… was he right? Are consumers spending what they absolutely need to be saving? If they are, what are the consequences?

“As always there are the signs but no one respects it till they see the flashing lights in the rear-view.”

- Heard at a bar in South Florida

At a South Florida bar another man was having a look. To him this consumer spending issue wasn’t upsetting, it was almost expected. He looked at consumers as children that could be bribed with a lolly pop. The question was why spending money you earned could be such a big problem.

“I don’t think people ought to spend more than 70% of their income for any extended period of time.” His theory was simple, consumers needed to have a buffer reserve in case of trouble in career/job, personal mishap, market crises, or government screw up. The possibility of trouble down the road becomes more likely as the job market gets introduced to newer innovation, health of the consumer gets worse with age, and social benefits become more difficult for the government to subsidize. Not having some personal financial reserve didn’t only seem irresponsible it seemed down right dangerous. Now I started to notice certain odd behaviors in the market.

New York changes the real-estate laws to be more like its socialist younger brother California. With rent control laws and eviction restraints on property owners. An old stat that resurfaces, is 60% of millennials didn’t have $500 to cover their tax bill. Only 40% of Americans can afford to pay off their credit card debt each month, the rest are accruing interest on their debt. The average American now owes over $6k on credit cards alone.

Luxury brands are all reporting great quarters and the American consumer seems to be getting into harder and harder times. If you walk down the street Starbucks has lines out the door, Lulu Lemon is on every label, and avocado toasts are only going up in price. It’s almost embarrassing these days to put something back on the shelf. Middle class brands are closing shop, if you buy your pants from Gap it almost feels like your missing out in life.

May be there is a consumer spending bubble. What’s gonna pop it? Who will get hit the worst? Can we bounce back from this one? How do we stop it in the future?