Something remarkable happened following the election of Donald Trump as the 47th President of the USA. The Dow Jones Industrial Average (DJIA) topped the 44,000-point barrier for the first time ever. Then, several weeks later, it briefly eclipsed 45,000.
The stock market is in full melt up. The Trump bump is powering share prices higher. Investors and speculators expect a bright future. And their intentions are to exploit it for personal profit.
The general logic is that Trump is pro-growth and pro-business. That his policies will unshackle the economy from the restraints of burdensome and onerous regulations. That he will stick it to foreign competitors and Make America Great Again. That corporate earnings will soar. And thus, stocks will become even more valuable.
The logic, unfortunately, is braindead. Stocks are already priced for perfection. Any positive effect Trump’s policies may have on the economy will take several quarters or more to show up on bottom lines. Yet share prices are increasing as if such an earnings boost will be immediate.
And what if cutting $2 trillion in government spending sends GDP down and the unemployment rate up? While ultimately this would be good for the long-term prospects of the economy. It would initially result in a situation where things get worse before they get better. There may even be a significant stock market selloff.
How things all turn out will be revealed in good time. But with Black Friday upon us, and the official start of the Christmas shopping season, let’s check in on what the almighty consumer is up to.
Buy Now, Pay Later
Some Americans were especially grateful as they said their Thanksgiving Day grace this year. These generally include wealthy owners of stocks and other financial assets. Forty years of inflationary monetary policies have elevated their prosperity to extraordinary heights. Now the Trump bump is pushing it even higher.
The remaining Americans, through no fault of their own, missed out on these special blessings. They don’t own stocks and haven’t seen their wealth balloon out because of monetary inflation.
Wage earners, for example, have seen their inflation adjusted incomes stagnate since the 1980s. Price increases of food, gas, and shelter have all outpaced the money that shows up in their biweekly paychecks. For them, it has been nearly impossible to get ahead.
Nonetheless, they push on as they always do. American consumers, rich and poor alike, are determined to make this a Christmas to remember.
According to Gallup, Americans intend to spend an average of $1,014 on Christmas or other holiday gifts this year. That’s a 9.8 percent increase from the $923 forecasted this time last year. It’s also well above the 3.9 percent average increase in holiday sales over the past 18 years, per the National Retail Federation.
Morgan Stanley also thinks consumers will go big. In fact, its proprietary survey of U.S. consumers revealed a 13 percent increase for holiday shoppers this season. More than triple the average.
How will they pay for it?
Without question, they’ll charge it to their credit cards. The motivation to ‘buy now and pay later’ will ensure this Christmas is merry.
Doom Spending
American consumers have a certain sixth sense about them. Right now, many are sensing that times are changing for the worse. That the future is dark.
In the past, expectations of a bleak future were motivation to tighten one’s belt. To squirrel away some nuts and hunker down for the lean years ahead. Now, this motivation has been stood on its head.
The younger cohorts, namely millennials and Gen Z, observe dark clouds on the horizon. But instead of saving and paying down debt, they’re choosing to live it up while they still can.
This is the rationale for the phenomenon of doom spending. Yet, this isn’t entirely new. The saying “when the going gets tough the tough go shopping,” has been around for at least 40 years. But the world wide web has taken it to another level.
First people do what’s called doom scrolling. They pull up a news site or their favorite social media platform on their iPhone. Then they scroll down and down and down. They see story after story after story about how terrible the President-elect is, how global climate change will destroy the planet, and how awful they are because they’re Americans.
These stories, having headlines to trigger an emotional response, are designed to get clicks. Publishers have found negative headlines are much more compelling for readers. So, they run more and more of them. But aside from getting clicks, the emotional response permeates much deeper.
After doom scrolling throughout the day, consumers are overcome with gloom. That’s when it’s time to reach for a release. Something to make them feel better, like spending money on credit in return for some retail therapy.
The Zealous Pursuit of Retail Therapy
An Axios Vibes survey conducted in June by The Harris Poll, found that:
“A majority of surveyed millennials and Gen Z’ers agree it is better to treat themselves now rather than hold off for a future ‘that feels like it could change at any moment.’ Similarly, a majority agree they deserve more expensive purchases ‘after surviving the last few years.’”
What gives?
An uncertain future has been the norm for humanity throughout its entire existence. Those of a certain age can remember growing up under the prospect of nuclear obliteration. This came on the heels of two world wars and a great depression.
Several generations prior witnessed the death and destruction of the War Between the States. Somehow these recurring bouts of doom and destruction didn’t stop people from saving, investing, having kids, and striving for a better future.
The dawn of doom scrolling and doom spending seems to have punctured the younger generation’s spirit. Moreover, it’s ensuring them the very future they fear. One where their economic prospects have been consumed by debt enslavement.
Of course, for every problem there is a solution. Often more important than the actual solution is the promise of a solution. For it is in the promise where opportunity is found.
This is the important revelation discovered by Aja Evans. She’s carved out a fruitful niche as a ‘financial therapist.’ Evans, author of the book “Feel Good Finance,” explains the problem and solution as follows:
“What you’re following and the messages that you are receiving online can make you feel worse, increase your anxiety, and make things feel more dire than they are. When you’re in the midst of scrolling, you might think: ‘You know what? Things are just really bad. I’m going to feel better if I purchase.’”
Do you follow the logic?
Add holiday shopping to the mix, and doom spending in the zealous pursuit of retail therapy is a prescription for feeling really good.
And it’s great for retail, to boot.
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Sincerely,
MN Gordon
for Economic Prism
Return from The Zealous Pursuit of Retail Therapy to Economic Prism
