smart spending

GDP numbers don't tell the whole story

New domestic cars
New domestic cars

Speedy sales for new cars

Out in many driveways, you'll find new cars and mostly domestic ones, as those registered a 13.1 percent increase in spending from first quarter 2009 to 2010. Two reasons account for this jump and they both stem from the Toyota recalls, says John Wolkonowicz, senior auto analyst at IHS Global Insight in Lexington, Mass., an economic and forecasting and consulting company. First, the Japanese carmaker's problems steered buyers toward American vehicles, he says. And second, the company offered incentives that spread throughout the industry, such as rebates worth between $2,000 and $6,000 or zero percent down financing.

"Toyota decided correctly that they had to turn the tide of negative publicity and in March offered incredible deals on those models most heavily impacted by recalls," says Wolkonowicz. "That has forced other auto companies to match or kind of match deals. And that has made it a terrific time to buy a car."

The rich indulge in pleasure craft

Finally, you can't be surprised to hear there's a small circle of us still living large. They're perhaps the people fueling increases in the category the government calls -- and these are official titles -- pleasure boats and pleasure aircraft. Neither of these categories has a huge impact on overall GDP, nor are the dollar amounts spent on them each year significant.

For example, consumers will spend a total of $14 billion on pleasure boats this year, according to the first quarter annualized rates. That amount is in line with our spending on motorcycles, but still much less than, say, the $71 billion we'll spend on bakery goods. For pleasure aircraft, the well-to-do will spend about $1.5 billion this year, an amount that's dwarfed by the $57 billion we'll spend on beer -- though presumably on separate occasions. But the eye-openers are the percentage increases for these luxury purchases: up 8.1 percent for boats and 15.6 percent for planes.

"Whether it's enough to call a recovery, I don't know," says Ron Gunnarson, the director of marketing for Hawker Beechcraft Corp., a maker of personal and business aircraft, who says that small planes can sell for between $200,000 and $400,000. "But it's the same type of person buying them. ... There are just more of them this year than there were last year."

So does this mean strong economic growth ahead? Hardly, says Wells Fargo's Vitner. For starters, purchases for all these products aren't close to touching their pre-recession highs, he points out. And because wages and salaries have actually declined over the past six months, today's shopping sprees are contributing to tomorrow's frugality.

"They're being enticed to spend when they wouldn't have spent otherwise," says Vitner. "Consumption today will come at the expense of consumption in the future."

Brett Graff is The Home Economist and a former U.S. government economist who now reports on the economic forces affecting real people.

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