HILL COUNTRY, TEXAS — Though the national economy is showing signs of slow recovery just about everyone has suffered from the recession over the last year or so.
Investors, including millions of 401(k) participants, have watched their retirement stash drop and drop. Unemployment in some industries, such as technology, has been dramatic. Everyone has been sitting on the edge of their chairs waiting for a shoe to fall on them.
Well, not everyone. Makers of expensive toys such as RVs, personal watercraft and ATVs have seen record sales and profits during this recession. What’s going on here? Is it really possible that people have been buying expensive toys while the stock market plunges, our country goes to war and our economy suffers? According to a recent story in The Wall Street Journal, it is true indeed.
Some excerpts from the Journal story paint the picture. Polaris, the maker of Arctic Cat ATVs and personal watercraft, is thriving to the point of having difficulty keeping up with sales. ATV sales climbed 5% in the second quarter while sales of personal watercraft went up 10%.
Net income at Brunswick Corporation, maker of treadmills, pool tables, boats and motors, rose 11% for the second quarter of this year. Similarly, motorcycle maker Harley-Davidson enjoyed a 25% profit increase.
So much for the statistics. Let’s see if we can figure out what’s happening.
Fear of terrorist attacks and the falling stock market has caused some Americans to opt for happiness today in light of the uncertainty of tomorrow. Remembering some shaky financial times in my own life, I recall thinking that money spent on family and fun, or even donated to charity, was forever beyond the reach of my enemies. Thus, I understand the “live for today for tomorrow you may die” attitude. Not a very healthy financial philosophy, but a means of gaining some peace of mind in an environment where peace of mind is getting hard to come by.
Another factor is the shifting demographics of the U.S. The huge Baby Boom generation is now moving through their 50s and they are ready to enjoy life. In most cases children are out and gone, and financial obligations of all kinds have declined with the departure of the brood. Actually, this generation has always been ready to enjoy life but their resolve is getting even stronger. They have the most discretionary income, and they are spending it on themselves.
Cheaper interest rates are also making discretionary purchases more affordable. Two reasons. First, cheap interest on debts to buy the toys keeps the payments low. Second, many Boomers have re-financed their homes and the lower mortgage payments make toy buying irresistible.
Economists worry that Americans are piling up too much consumer debt. Not only is this unhealthy by itself, but it could delay the economic recovery since consumers may have already consumed to their credit limit. Consumer debt payments as a percentage of disposable personal income have climbed to levels not seen since 1987, hitting a high of 8% in the fourth quarter of 2001. On the other hand, more families are two-income these days and that provides a cushion against financial catastrophe should a layoff occur.
One particularly troubling aspect of the home refinancing scene is the disposition homeowners have made of the cash proceeds. One might think that the freed-up equity would have been used to reduce the mortgage. One would be wrong. Rather, the cash received upon refinancing was spent on a variety of things, including reduction of credit card debt and buying new home furnishings. Rarely did any of the money find its way into home mortgage debt reduction. Oh well, maybe paying on the old home mortgage until age 86 won’t be so bad after all.
Normally I would criticize the financially irresponsible antics of the Baby Boomers. However, since this boomer is deep in the Texas Hill Country riding his ATV and having loads of fun, I will keep my sharp tongue in tow. In my defense, however, I am not going to buy a snowmobile.
Thought for the Moment — A wound heals but bad words never fade.
— Philippine proverb
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at email@example.com.