Uh-Oh: One segment of consumer spending down to 1970s level

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In the never-ending, "Things are getting better/no they're not" debate, here's a fresh data point, courtesy of the bright minds at the Financial Times. And it's another sign America's economy is perhaps more fragile than it appears, even to experts.

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Spending on "services" as opposed to "goods' has plummeted in recent years, and has fallen to its lowest level since the mid-1970s as a percent of consumer spending. Since the 1970s! See the chart above, and read FT's explanation. (You might have to register)

Let's define some terms. Goods is simple enough -- stuff people buy. TVs, cars. Services is a bit more vague, but can represent everything from rent to healthcare to haircuts. In other words, when people spend money on things and there's no thing to show for it.

It can be argued that a pullback in services spending is a sign of weakness, and that more spending on non-goods indicates a healthy economy. Haircuts could be considered splurging, for example. Of course, it's not as simple as that. Spending on stuff like luxury items can indicate a healthy economy, too.

However, there are ample reasons to argue that this change is a sign of trouble. It's certainly bad news for the services sector of the economy, increasingly important as America's industrial economy continues to shrink. It's probably one reason there is such wage pressure in the services sector.

Back in December, Bloomberg made the pursuasive case that the delayed adulthood phenomenon is largely to blame. Roughly one-third of young adults live with their parents into their 30s now, and this lack of household creation has clearly slowed spending on rents, utilities, and a host of other items that get bought when someone moves into their own place. In particular, Boomberg quoted Carl Riccadonna, senior U.S. economist at Deutsche Bank Securities Inc., as putting the blame for the sluggish economic recover squarely on slow services spending growth. How slow?

"Expenditures adjusted for inflation have risen 6.3 percent since mid-2009, compared with a 34 percent surge in outlays on durable goods such as automobiles and appliances, according to data from the Commerce Department in Washington," Bloomberg wrote.

Think about your own spending. Are you more likely to fix the toilet yourself rather than call a plumber today? More likely to bother a friend than pay for a taxi to the airport? More likely to cook than eat out, or buy a six pack and stay at home rather than go to a bar? Services can look like a luxury, and in a population that feels an uncertain future, even folks with good jobs reflexively look to save money. That's good for you. But it's probably not good for the economy. It's certainly not good for companies and employees in the services sector. It's enough to make you feel restless.

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