What’s holding down spending?

Check out the official recap for photos, videos, articles, presentations and more from Retail’s BIG Show 2017 .

Check out the official recap for photos, videos, articles, presentations and more from Retail’s BIG Show 2017 .

William Dudley, President and CEO of the Federal Reserve Bank of New York, offered his views on ways consumer behavior has changed in the United States over the past decade, and the impact of these changes on the retail industry.

Taking a path he described as somewhat different from the usual analysis and projection, Dudley focused his remarks on the relationship between housing and retail spending.

“I would argue that there have been some significant changes in the ways households finance their consumption,” he said, “and I believe that changes in housing and mortgage markets have affected the willingness and ability of households to borrow, and that this in turn has had important consequences for the dynamics of consumption over the last decade.”

These changes in housing and mortgage markets, Dudley said, are an important reason that recovery from the Great Recession of 2008 has been weaker than many — including the retail industry — would like.

What appears to have happened is that the housing crisis and its aftermath have made homeowners markedly less willing to leverage their home equity to finance retail purchases. In comparison to their behavior before the crash, they aren’t using housing equity as collateral for short-term loans or taking out second mortgages.

What about the border tax proposal?

Dudley questioned House Republicans’ plan to create a new tax on imports, saying it may have “unintended consequences.” Read more about Dudley’s comments on the border adjustment tax and watch video highlights from his session at Retail’s BIG Show.

Some of this, Dudley acknowledged, is involuntary: Banks have changed their rules, and it’s harder to get a loan than it used to be. Much of it, however, appears to be voluntary. Instead of buying second cars or taking extravagant vacations, people across the wealth spectrum are paying down their mortgages.

And they aren’t — or at least appear not to be — betting that their houses will steadily and permanently increase in value by borrowing against the future.

All of which, by Dudley’s calculations, subtracts about $500 billion annually from retail spending. One thing that would help would be a doubling of the current 2 percent rate of economic growth, which is being projected in some parts of Washington, but Dudley indicated that such aggressive growth is unlikely.

This story was published in the February/March 2017 issue of STORES Magazine. See more highlights from Retail’s BIG Show 2017.