The biggest non-event in history had to be Y2K. It came and went without a whimper but it caused great concern and anxiety. The fear also forced almost all businesses to update their computers at a single time. As a result, computer sales for the next two years fell like a rock. By 2003 pent-up demand forced businesses to free up cash for new systems.
Sometimes we have wants and when cash is available and wants are strong enough consumers will spend money. Sometimes we have needs which are even stronger and we might even consider using leverage – borrowing from a bank or family member – for an expense today. Then there are requirements that leave no options. You take care of the issue any way you can.
A few years back my youngest daughter noticed a car and said to me “Daddy, don’t they know it is dangerous to park on the highway?” It took me a moment to realize she hadn’t seen a broken down car. My family grew up with used cars and the occasional breakdown wasn’t a surprise but rather a common reality. Kendra had never seen one or at least hadn’t noticed one before that summer day in 2006.
As I travel the interstate weekly I notice the occasional breakdown on the occasional day has gone from one every now and then to several most every day. Are cars being made with less quality and care? No. Situations changed and that forced demand to change.
In 2006 and 2007 if we wanted a newer car we bought one as did most other families. After 2008 many families delayed the purchase and drove their vehicles a little longer or bought a used one as my family chose to do. Our wants were delayed until they became needs and for some families the decision has still been delayed. Today we have moved from need to requirement.
The average car on the road is over 11 years old. That is much longer than the normal age of the street fleet but less than it was in 2012. Purchases are picking up and that is very good for the economy. Auto sales are one of the largest leaders of complimentary consumer spending. Complimentary meaning that when you spend one dollar you are compelled to spend others.
You can buy a dinner at a nice restaurant and be done with it. You can see a movie and go home. With a car you must buy tires, windows, engines and even gas. They prepackage many of the parts obviously but your purchase impacts many parts of our economy. This is why auto sales and home building are so critical and discussed constantly. One dollar spent in those areas represents many more that will need to be spent going forward.
Economic extremes create many consumer spending distortions. Pay attention to the trends of wants, needs and requirements and make your investments accordingly. As always, things do change and they will do so again.
Joseph “Big Joe” Clark, whose column is published Sundays, is a certified financial planner. He can be reached at firstname.lastname@example.org or 640-1524.