Tuesday, July 22, 2014

Hello deflation.

Everything in your house is getting cheaper to buy. Opinion: Prices of consumer durables are falling rapidly.

"People tend to pay attention to the prices of things they buy all the time, like gasoline, milk and meat. But who can remember what it cost them the last time they bought a washing machine?"

To be honest, I can always tell when people don't actually own anything by the way they describe things. It's always somewhat frustrating because these people actually write about the economy. What gave this guy away? The average lifespan of a dishwasher or washing machine these days is seven years now. I've had many people who work in the industry tell me this. It's unbelievable but irritatingly true.

In the past 8 years I've had to buy two washers and three dishwashers. One was at my rental. They rarely make it to seven years. Even appliance repair men are up in arms about it. You might get slightly over the 5 year line if you are lucky. If you can't remember what a washing machine costs - you don't own anything or know anything about consumer items. The days of buying a washing machine that lasts a lifetime have been over for almost a decade. Especially with those front loaders. Normally this environment would be great for repair men - if they are actually able to repair them. Now the repair is about half the cost of replacement. Which makes replacement more attractive. You figure you only need two repairs to add up to a new machine.

Don't take my word for it though. Take Home Depots word. It used to be that front loaders were most of the market. Walk into a Home Depot now and top loaders are again pushing out the front loaders. That tells me that I'm not the only one who thinks they suck.

The other thing he says about people only paying attention to things they buy every day is true. I've been saying for months now the drought is causing people to think inflation is much more intense than it is. Because those are the items they buy every day. Just two weeks ago I said this:

"So.. here in lies the problem. I believe the drought is causing inflationary pressures that absent them, the picture would look very different. A couple of weeks ago when I said that deflation would probably return by the end of the year - it probably seemed crazy to most people. Some of the early same store sales only reinforce my belief."

Now - consumer items always fall in price over time. They get better at making stuff. They sell more which brings the price down. But not normally this sharp in such a short amount of time.

• Prices of major appliances are down 7.9% in the past year, the largest decline on record. Laundry-equipment prices are down 8.6%.

• Furniture and bedding prices are down 2.5% in the past year.

• Window coverings, rugs and other linens are down 2.1%.

• Clocks and lamps are down 6.9%.

• TVs are down 15%. Audio-equipment prices are down 2.4%.

• Telephone-equipment prices are down 7.7%.

• Camera prices are down 6.7%.

• Dishes and flatware are down 6.3%. Cookware prices are down 4.7%.

• Computers are down 6.3%.

• Tools and other hardware prices are down 1.5%.

• Toys are down 6.5%. Sporting goods are down 1.3%.

• Jewelry prices are down 4.5%.

• Medical equipment prices are down 1.1%.

• New car prices are down 0.4%. Auto parts are down 1.2%. 

Just about the only thing that’s seen prices rise in the past year is new trucks, which are up 0.6%.

I'd wager that cars are still strong because the commercials offer 0% down, 0% at signing, and 0% financing for up to 72 months. This has not changed for five years. This doesn't tell me that car sales are especially strong.

The other thing that tells me things are not going well is I can find an interest rate under 4% today. It's not easy, but if you work at it you can. They have been bumping along the 4% dividing line for months, but are usually right over the line rather than under it. If they start staying under 4%...... well.

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