Moving at no-wake speed through an age of thrift

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As consumers, and as an industry, we are living and doing business in an age of thrift. Consumers are continuing to deleverage to work off debt from their household balance sheets to increase their savings.

As such, people are holding on to their boats longer, and when they do buy new there is plenty of anecdotal evidence to suggest that they have been buying a bit smaller and a bit less expensive. Nothing surprising there.

This fact is worth keeping top of head: The average age of a used boat has increased by about five years since 1997. That’s according to Brunswick chairman and CEO Dustan McCoy, who told analysts during a second-quarter earnings call that the average age of a used boat in 2010 was about 21 years.

With boats built during the peak years of the late 1980s approaching the quarter-century mark, the thought is that obsolescence and age will cull the ranks at a faster pace, giving a boost to new-boat sales. Some of that certainly is taking place.

The counter-current is the culture of thrift, of sitting tight for several more seasons and upgrading the old tub: putting on a new teak deck or repowering her, or painting over a tired, faded gelcoat. Many of us fell in love with our old boats all over again during the Great Recession. When things improve, those boats are likely to show their age, which we might not be as willing to overlook as we are today. Remember, pent-up demand develops during recessions.

The age of thrift, a culture of thrift … I recently read a report on the so-called “paradox of thrift,” a concept promoted by economist John Maynard Keynes that suggests broad collective savings, or thrift, might hurt the economy by decreasing consumption and thereby slowing economic growth.

Consumer spending accounts for more than 70 percent of GDP. As I reported in a blog a couple of weeks ago, the top 5 percent of income earners accounts for about one-third of spending and the top 20 percent accounts for close to 60 percent of spending. A sharp cutback in spending by that group only made the recession worse, according to some economists.

Outgoing Federal Reserve bank president Thomas Hoenig addressed the paradox of thrift in a recent Marketplace Money feature from American Public Media. He was asked, in short, whether there would be enough consumer oomph to drive the economy forward if everyone were to really save.

His answer: “The only way we can drive this economy forward is to save. Nations know that. You could only build from strength. … I understand what we refer to as a ‘paradox of thrift:’ If everybody saves too much at once, the outcome can be a worse recovery,” Hoenig, the outspoken president of the Federal Reserve Bank of Kansas City, told Marketplace’s David Brancaccio. “As a nation, we need to think about the long run. … If you fail to save, if all you can do is consume and borrow from the rest of the world and import their goods, then you make yourself poor over the long run.”

That’s the long view.

Everyone from Wall Street to Europe to China will be listening closely Friday to remarks from Federal Reserve chairman Ben Bernanke with an ear tuned closely to suggestions of additional stimulus.

Will Bernanke ride to the “rescue” of the markets with another round or version of quantitative easing — QE2.5, perhaps? Proponents argue that it could keep the economy from slipping into a double-dip recession.

But there is plenty of opposition to additional stimulus from within the Beltway, from some economic strategists, from other Federal Reserve Board members. Their objections include concerns about fueling consumer price inflation and the impact of increasing our long-term debt.

Bernanke is in a difficult spot. Doing nothing surely would disappoint markets. As one trader told Money Watch earlier this week: “If we get it, we’ll have a nice rally. If we don’t, we’ll have a bloodbath.

But the Fed has already promised to keep interest rates low until the middle of 2013. Bernanke certainly will parse his words carefully as he outlines the tools that are left in the Fed’s toolbox and how they might be used on an economy that appears to have either hit stall speed or a particularly strong set of headwinds.

In the meantime, our fleet of boats is going to rack up some more hours as we steam through this age of thrift a bit longer.


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