Feb

17

 Pent-up demand is an economic term not used that much in recent years but now see beginning to work its way into the vocabulary of business articles (as with WSJ story below).

My elementary-level sense of pent-up demand is that it is money that is currently being saved by the consumer in order to pay down existing credit card or loan debt or to counter the risk of job loss or to offset thoughts of an uncertain future (i.e. save it for a rainy day approach).

This money sitting on the sidelines will have to be spent at some point, however, to replace balding tires, leaking roofs, old TVs and appliances, moth-eaten clothes (those not considered fashionable, poor chic), and any other numerous material items subject to increasing entropy.

Perhaps there are a pent-up demand curves that have been forming that have different shapes depending on the consumer's ability to postpone taking care of the inevitable. At some point in time the curves overlap and herdish spending begins amongst the backdrop of low energy prices and government stimulus…possibly starting with the basic (for some a nice TV or new computer) necessities and then moving on to larger consumer purchases.

How long can you drive a clunker for instance? And if you do you are undoubtedly going to need to purchase parts? Sure you can drive a 10-yr old car but it is going to cost you to keep it running.

From the WSJ:

When the economy contracts by as much as it did in the fall, it means that consumers and businesses are forgoing spending that they might otherwise see as necessary purchases.

In a normal year, for example, about 5% of the cars, pickups and other light vehicles on the road are sold for scrap. With roughly 250 million light vehicles in the country, that means that just to keep up with the scrap rate, about a million new vehicles need to be sold each month. The last time more than a million light vehicles were sold in the U.S. was August, according to the Commerce Department. In January, just 655,200 vehicles were sold — the lowest number in the 33 years of the government data.

Mike Darrah, owner of Darrah's Automotive & Recycling in York, Pa., said the number of cars people have brought to him to scrap has fallen by 40% to 50% since September. "People are driving more clunkers," he said. "They don't have the money for a new car. They don't have the money to fix the clunkers. They're getting by on as little as they can."


Comments

Name

Email

Website

Speak your mind

Archives

Resources & Links

Search