Why does the economy grow and families do not notice it?

Despite the positive change in the macroeconomic conditions we have been going through for months, it is still common to find an acquaintance to tell us, “well, what do you want me to say, I have not heard yet that we are doing better, as they say”. This is certified by the CIS barometer of June 2015, when a question of “how do you think your family’s economic situation will be within a year”, 64% say it will be the same or worse. Pessimism reigns – certainly less than a year ago –
but it is still pessimism, perhaps today more tinged with skepticism. In a way, the referent is still the period of the boom and although it has been repeated that this situation will not return, the state of mind that can be pressed “on the street” is low. This is evidenced by the European Consumption Observatory of Cetelem 2015, where the interviewee is invited to say what their financial situation is compared to five years ago. 66% say it has worsened and 64% say it buys less.
On the other side of the barrier, in the statistics, we find an economy (GDP) rising at an annualized quarterly rate of 4%, private consumption that goes at the same speed and retail sales that rose 4.1% per year. This week we knew that car sales grew 23% in August, we see that there is positive movement in the real estate sector, that consumer credit grew by 16% year-on-year in the first half of the year … What’s happening? Do people deceive interviewers? Are the statistics bad? It does not seem that neither one nor the other is what is happening –

there are too many indicators on both sides that certify it

rather everything points to the explanation of this contradiction happen because there is still a segment of the population that is in a situation very bad, while many of those who are better and even spend more, still are not aware of it. On the other hand, there are people who fortunately have not lived through the crisis, because they have been able to keep more or less their income, but they put the brakes on their consumption for a reason of caution and now they start to recover the lost ground, something that especially it is perceived in nonperishable consumer goods, those that had suffered a postponement in their purchase, read appliances, furniture, cars …
This would be roughly the first explanation, but the issue is complex and admits many nuances.
For example, for Gerard Costa, Esade’s Marketing professor, there is a trust problem that is still very important. “It’s like in the couple, it’s hard to lose trust, but when it’s lost, it’s much harder to recover.” He says that only thinking in these terms and the profound damage -very internalized- that has caused the Great Crisis in many layers of the population, can be understood that Spain presents the biggest differences in Europe between economic reality and personal expectations. “In the first case, we are as in Germany and in the other as in Portugal …”, he continues. Well, let’s say that some families spend more, but still without confidence.
Insists Antonio Vilar, Professor of Economics at the Pablo Olavide University of Seville and fellow of the OECD. “There is a certain inertia in the perception of reality, but what seems certain is that consumption is growing asymmetrically, the middle and upper classes are pushing a lot and have a very significant weight in the population.” These are the segments of the population that most cut their spending when the crisis began and are now consuming what they postponed because they have money. Explain that this inertia in the perception of reality appears in all aspects of life. and sets the example of healing. “In Spain, we have the longest life expectancy and, on the other hand, there is a perception of our own health that is not very good, and in Greece, where hope is lower, they feel healthier than anyone,” she says. Certainly, the psychological aspect plays a decisive role.
“Many people still have their mental chip in ‘savings’ mode, and over the years we have changed consumer habits a lot. I can affirm that in basic products the recovery has been spectacular in the big distribution. 1.7%, which is very high in the field of non-durable goods, partly due to the fact that during the year we experienced a deflation in the large consumption, the manufacturer’s brands have been in constant supply, while the brands As a distributor, they have always been cheaper, but I would dare to say that people spend more, although they do not always perceive it, “says Asís González de Castejón, director for Nielsen distribution studies.
Another point of view is provided by Oriol Aspachs, director of Macroeconomics of the Strategic Planning and Studies Area of La Caixa, “we should not be surprised at all that the perception of recovery appears with a certain delay.” Let’s remember what happened with the recession, also It took a while to recognize it and change habits. ” In addition, he adds, that people today are still uncertain, since the last time they were told that they were better, after a short time the economy fell into recession because of the Greek debt. “Although analysts say that the situation is going better, people think twice before accepting it,” he continues. And it raises a very important aspect. “The situation is better because we focus the analysis on growth rates, but it is not ‘much better’ since we should not forget that in absolute values we are still at levels that are below those that existed before the crisis.” Admit that the sources of uncertainty have changed. “Years ago they were internal, about the growth of our economy, now we no longer have so many doubts about our own, but the fear comes from outside – call it China or Greece – and the possible repercussion that the problems may have here”.

Anyway, there are a number of real aspects that should be emphasized.

For example, since 2010, Spanish families have de-indebted in a figure close to 140,000 million euros, representing 14% of GDP. The financial costs of family indebtedness have also fallen substantially, especially in those relating to mortgages. And there is a slight change of personal approach. For Professor Costa, “people start to indulge at home, although they are very reluctant to pay for food, for example, there are 50% of families willing to save on electricity and gas and 20% to rethink he lowers his leisure expenses. ”
In short, who and how does consumption drive? According to the latest report by BBVA on the situation of consumption in Spain in the first half of 2015, it is “the middle classes and the well-off households that are responsible, while the spending of the least favored -which during the crisis declined less in relative terms – continues to fall, which has led to a certain rebound in the inequality of the distribution of spending “. With regard to the products that show the greatest momentum, it is stated that “durable goods lead spending growth since mid-2013”. In this sense, Professor Vilar is sharp. “In the consumption of durable goods, the less favored change an object when it breaks or when it can not pull more, whereas the better-off change it when a new model comes out.” If the drop in spending was accelerated by the classes medium and high, the recovery also comes for them “.
According to the latest Global Survey of Consumer Confidence, prepared by Nielsen consultancy (May-June 2015), “the confidence of the Spanish as a driving force for consumption again grew in the second quarter of 2015, confirming the good expectations the first three months of the year. In this way, the consumer confidence index gained nine points in the first half of this year, going from 63 to 72 points. There are four points of rising between January and March and another five between April and June, which accelerates the growth rate of confidence as the year progresses. This figure, also, brings Spain closer to the European average, standing at 79 points. ” This vision is very close to what the real indicators indicate. But perhaps the point that unbalances the balance between perception and reality, in favor of indicators, is the growth that consumer credit registers to families.
It has already grown by 8.25% in 2014 and continues this year.

According to estimates in Cetelem, with data from the Bank of Spain in hand

“the improvement in employment and a higher disposable income of Spaniards make it improve by 16% the credit for consumption granted, which reaches 9,142 million euros in the first six months of 2015 “. In addition, financing grows in all consumer segments. In the case of automobile credit, the growth was almost 30% in the first quarter. The advance of credit for new cars (+ 31.34%) is much greater than for the second-hand vehicle (+ 20%). In the case of credit for the purchase of consumer goods, for example, large appliances, the increase is 5.67%, reaching 838 million euros. The personal loan, on the other hand, grows 66.6%, according to data from ASNEF- I hope this works. However, it is good to keep track of the references and remember that in 2007, Spaniards were asking for financial liquidity for a value three times higher than what was requested this year.