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7 Products With Falling Price Tags
7 Products With Falling Price Tags
by Jay MacDonald
provided by
Bankrate.com
Your financial ship is taking on water from all sides: a plunging stock market, alarming spikes in food costs and a home value that's headed in the wrong direction. Now, Congress is enlisting your help to bail out Wall Street as well.
Ready for some good news?
Preposterous though it may seem, we have identified seven islands of relief in this dark sea of economic uncertainty.
More from Bankrate.com:
• 6 Tips for Savvy Holiday Shipping
• Video: An Energy Audit Could Save You Money
• 5 Money Mistakes Even Smart People Make
That's right -- seven categories of consumer goods and services in which prices have actually declined over the past decade.
The good news comes from the Bureau of Labor Statistics' Consumer Price Index, or CPI. The Federal Trade Commission coordinates with the Bureau of Labor Statistics, or BLS, to make sure the CPI reflects an apples-to-apples value comparison before adjusting for inflation.
An improvement in the quality of a product over time is an important factor in this calculation.
"When they examine, they try to correct for differences in the quality of products," says Tom Kelly, who used to work for the FTC and is now director of the Center for Business and Economic Research at Baylor University in Waco, Texas.
"So when you make comparisons, you're comparing two similar-quality products. If the price remains the same and the quality goes up, that effectively reduces the price."
Following are seven categories of goods and services that are comparatively cheaper today than they were 10 years ago. All figures are based on a BLS comparison of like products and services from August 1998 and August 2008.
Items That Have Grown Cheaper
1. Phone bargains: Can you hear me now?
Motormouths rejoice: The price of wireless telephone services dropped 31.6 percent during the past decade, while the price of long-distance telephone calls fell 23.1 percent.
Why the cell phone bargains?
"Cellular telephone service was a relatively new item 10 years ago," says Dan Ginsburg, BLS supervisory economist for the CPI services section. "Usually, items that come in with new technology start off higher priced, but as sophistication in delivering the service becomes greater and competing companies develop more high-tech solutions, the costs keep coming down. Competition helps keep the prices low."
You can thank competition for the long-distance savings, too.
Ginsburg credits the 1983 deregulation of telephone services that resulted in the "Baby Bells" for reducing the cost of long-distance calls.
"As competition crept into the market, it became much less expensive with newer technology to make long-distance calls, so the prices just came way down," he says. "Suddenly, the Sprints and MCIs and other companies were eligible for long-distance service. It worked the way they thought it would."
2. Electronics: Applause, applause
It's hardly news that the prices of personal electronics have dropped to what would have been garage-sale prices a decade ago. This is true of televisions (down 77.9 percent); computers (down 88.3 percent); audio equipment (down 39.3 percent); and videocassettes, video discs and other media, including rentals (down 20.4 percent).
"Televisions and audio equipment have benefited from technological change," Ginsburg says. "It became much less expensive to manufacture TV sets. With the advent of high-definition TV in more recent years, older televisions that couldn't capture high-definition TV became less valuable and the prices dropped, even though they were still being manufactured."
Increased competition and cheaper labor costs associated with overseas outsourcing played a big role in price declines. These factors, combined with new technology, helped lower the prices of other recreational electronics, including photography (down 19.3 percent) and musical instruments (down 4.1 percent).
"The switch from conventional film to electronic capturing of pictures, moving into an electronic rather than a chemical-based methodology, apparently had big savings," Ginsburg says.
What about those bargain-basement Fender Stratocasters?
"That's been affected a lot by competition," Kelly says. "Particularly, you're getting more standardized products like guitars, which are made in China and other countries."
3. Footwear: These boots were made for savings
The recent "Sex and the City" movie would have us think that every woman's closet is stuffed to overflowing with Manolo Blahnik and Jimmy Choo shoes.
Not so, says BLS apparel economist Nicole Shepler.
"I don't have any hard-and-fast data on that, but that is a very small part of what we price overall," she says. "So, I think that doesn't have much of an impact."
In fact, shoe prices have declined by 3.9 percent, thanks in large part to lower-cost foreign imports and the growth of discount outlets and big-box stores.
"You still have $200 Nikes," Shepler admits. "But I would hypothesize that that may be one of the reasons why footwear has not declined as much as some of the other clothing areas."
4. New vehicles: More features, fewer buyers
Kelly isn't afraid to state the obvious: "People are not buying cars."
Reduced demand tends to lower prices, as witnessed by the 6.6 percent drop in the price of new cars and trucks over the past decade.
Ginsburg says the automotive industry has tried to hedge consumer disinterest by using less expensive materials and boosting the features: cup holders, seat warmers, DVD players, backup cameras and the like.
Because the Consumer Price Index takes functionality into consideration, the CPI's decline in the price of new cars and trucks may in part reflect that increase in features and options.
"Motor vehicles are a relatively mature industry," Ginsburg says. "As technology improvements are brought out, we usually quality-adjust for those because they have certain value for the consumer.
"If you look at the actual price-page of the vehicle today versus 10 years ago, today's Chevy Impala is probably quite a bit more expensive but it also has quite a bit more safety features and enhancements that are deemed desirable by motorists. If you remove those quality aspects, the price difference falls quite a bit."
5. Toys: Not all fun and games
The good news for parents is that the price of toys has declined 44.4 percent over the past decade.
The bad news? In some cases, quality may have been sacrificed for profit, as witnessed by recent lead-based toy scandals.
"Most of your toys have been outsourced to other countries where labor costs are lower," Kelly says.
On the bright side, Ginsburg says the declining cost of electronics has helped drive down the price of playthings.
"Toys, games, hobbies and playground equipment are down," Ginsburg says. "I would think that's due to outsourcing and moving toward electronic devices that have become very inexpensive to produce."
6. Apparel: Dress for less
We may be struggling to fill the gas tank or feed the family, but we can take some solace in the fact that the cost to clothe the family has dropped 11 percent during the past decade.
Shepler theorizes that as a society, we have shifted our measure of fashion away from clothing and toward more ostentatious displays of bling, such as plasma TVs and iPhones.
"In a sense, electronics has replaced clothing as the fashionable item," she says. "It's about having the latest iPod or toy instead of apparel as reflecting status.
"The demand for clothing has certainly fallen as more and more shoppers are looking to electronics as being the fashionable item."
Lower-cost foreign imports and volume buying by discount and big-box stores have helped lower price tags. This is particularly true for the cost of boys and girls clothing, which has dropped 23.3 percent and 18.6 percent in 10 years, respectively.
"Children's apparel certainly declined a bit more, likely due to more shoppers going to discounters," Shepler says. "Outlet and big-box stores didn't exist to this extent 10 years ago."
But Ginsburg warns that the quality of those garments may not measure up.
"The length of life of a garment may be a quality factor, but it's not measurable without being able to have someone wear the garment for six months, then wear an American-made equivalent for six months and see the differences between how they wear," he says.
7. Watches: Time to save big
You may not be able to buy time as easily in a slowing economy, but you certainly can tell time for less. The cost of a timepiece fell 6.2 percent in the last decade.
Shepler says for every Rolex, there are hundreds of thousands of Timex watches that account for the Consumer Price Index figure.
"Watches are an item where you do get a little bit of the high-end goods but it's more going to focus on what shoppers are actually buying, which is going to be more of the less-expensive items, and those are going to be bought more at discounters," she says.
In fact, the price of watches, especially with the widespread adoption of digital inner workings, has declined to such a degree that many of us consider them disposable.
"Rolexes haven't really caught on with everybody; they're still buying the throwaway watches -- planned obsolescence," she says. "We would have some of those higher-end watches, but it's certainly not going to make up the bulk of our sample."
The Downside
Kelly says these seven relative bargains may actually exceed their CPI-estimated savings due to the recent bumpy ride of the U.S. dollar.
"If you look at the dollar, for a long time it was falling fairly rapidly, causing some of these prices to hold up a little," he says. "Now, the dollar is stabilizing in terms of its rate of decreasing. If the dollar goes up in value, it makes foreign-made goods cheaper; in other words, it lowers the price of foreign currency so importers can buy those items cheaper."
More from Yahoo! Finance:
• Why It's Smart to Splurge This Holiday Season
• Million-Dollar Giveaways: A Trend of the Times
• Detroit Bailout: 7 Key Questions
Visit the Banking & Budgeting Center
However, there's a downside to falling prices as well, Kelly says.
"When prices are falling, people will postpone buying," he says. "So you don't necessarily want deflation; you want disinflation.
"If you start having prices going down -- as in the housing market right now where housing prices are collapsing -- people say, 'Why should I buy a house now? It's obviously a buyer's market, I'll just wait a few more months and get something even better.'"
Such prudence will likely characterize consumer behavior as the economy slows, world markets struggle to stabilize and the effects of the Wall Street bailout on Main Street become clearer, Kelly says.
"You'll find that even more of those people who have money to spend are going to sit back and wait on the big-ticket items," he says. "Those are durable items that they've already got in hand but maybe don't have the latest high-def, 52-inch version of.
They're going to live with the one they have for six more months to get something better."
Copyrighted, Bankrate.com. All rights reserved.
by Jay MacDonald
provided by
Bankrate.com
Your financial ship is taking on water from all sides: a plunging stock market, alarming spikes in food costs and a home value that's headed in the wrong direction. Now, Congress is enlisting your help to bail out Wall Street as well.
Ready for some good news?
Preposterous though it may seem, we have identified seven islands of relief in this dark sea of economic uncertainty.
More from Bankrate.com:
• 6 Tips for Savvy Holiday Shipping
• Video: An Energy Audit Could Save You Money
• 5 Money Mistakes Even Smart People Make
That's right -- seven categories of consumer goods and services in which prices have actually declined over the past decade.
The good news comes from the Bureau of Labor Statistics' Consumer Price Index, or CPI. The Federal Trade Commission coordinates with the Bureau of Labor Statistics, or BLS, to make sure the CPI reflects an apples-to-apples value comparison before adjusting for inflation.
An improvement in the quality of a product over time is an important factor in this calculation.
"When they examine, they try to correct for differences in the quality of products," says Tom Kelly, who used to work for the FTC and is now director of the Center for Business and Economic Research at Baylor University in Waco, Texas.
"So when you make comparisons, you're comparing two similar-quality products. If the price remains the same and the quality goes up, that effectively reduces the price."
Following are seven categories of goods and services that are comparatively cheaper today than they were 10 years ago. All figures are based on a BLS comparison of like products and services from August 1998 and August 2008.
Items That Have Grown Cheaper
1. Phone bargains: Can you hear me now?
Motormouths rejoice: The price of wireless telephone services dropped 31.6 percent during the past decade, while the price of long-distance telephone calls fell 23.1 percent.
Why the cell phone bargains?
"Cellular telephone service was a relatively new item 10 years ago," says Dan Ginsburg, BLS supervisory economist for the CPI services section. "Usually, items that come in with new technology start off higher priced, but as sophistication in delivering the service becomes greater and competing companies develop more high-tech solutions, the costs keep coming down. Competition helps keep the prices low."
You can thank competition for the long-distance savings, too.
Ginsburg credits the 1983 deregulation of telephone services that resulted in the "Baby Bells" for reducing the cost of long-distance calls.
"As competition crept into the market, it became much less expensive with newer technology to make long-distance calls, so the prices just came way down," he says. "Suddenly, the Sprints and MCIs and other companies were eligible for long-distance service. It worked the way they thought it would."
2. Electronics: Applause, applause
It's hardly news that the prices of personal electronics have dropped to what would have been garage-sale prices a decade ago. This is true of televisions (down 77.9 percent); computers (down 88.3 percent); audio equipment (down 39.3 percent); and videocassettes, video discs and other media, including rentals (down 20.4 percent).
"Televisions and audio equipment have benefited from technological change," Ginsburg says. "It became much less expensive to manufacture TV sets. With the advent of high-definition TV in more recent years, older televisions that couldn't capture high-definition TV became less valuable and the prices dropped, even though they were still being manufactured."
Increased competition and cheaper labor costs associated with overseas outsourcing played a big role in price declines. These factors, combined with new technology, helped lower the prices of other recreational electronics, including photography (down 19.3 percent) and musical instruments (down 4.1 percent).
"The switch from conventional film to electronic capturing of pictures, moving into an electronic rather than a chemical-based methodology, apparently had big savings," Ginsburg says.
What about those bargain-basement Fender Stratocasters?
"That's been affected a lot by competition," Kelly says. "Particularly, you're getting more standardized products like guitars, which are made in China and other countries."
3. Footwear: These boots were made for savings
The recent "Sex and the City" movie would have us think that every woman's closet is stuffed to overflowing with Manolo Blahnik and Jimmy Choo shoes.
Not so, says BLS apparel economist Nicole Shepler.
"I don't have any hard-and-fast data on that, but that is a very small part of what we price overall," she says. "So, I think that doesn't have much of an impact."
In fact, shoe prices have declined by 3.9 percent, thanks in large part to lower-cost foreign imports and the growth of discount outlets and big-box stores.
"You still have $200 Nikes," Shepler admits. "But I would hypothesize that that may be one of the reasons why footwear has not declined as much as some of the other clothing areas."
4. New vehicles: More features, fewer buyers
Kelly isn't afraid to state the obvious: "People are not buying cars."
Reduced demand tends to lower prices, as witnessed by the 6.6 percent drop in the price of new cars and trucks over the past decade.
Ginsburg says the automotive industry has tried to hedge consumer disinterest by using less expensive materials and boosting the features: cup holders, seat warmers, DVD players, backup cameras and the like.
Because the Consumer Price Index takes functionality into consideration, the CPI's decline in the price of new cars and trucks may in part reflect that increase in features and options.
"Motor vehicles are a relatively mature industry," Ginsburg says. "As technology improvements are brought out, we usually quality-adjust for those because they have certain value for the consumer.
"If you look at the actual price-page of the vehicle today versus 10 years ago, today's Chevy Impala is probably quite a bit more expensive but it also has quite a bit more safety features and enhancements that are deemed desirable by motorists. If you remove those quality aspects, the price difference falls quite a bit."
5. Toys: Not all fun and games
The good news for parents is that the price of toys has declined 44.4 percent over the past decade.
The bad news? In some cases, quality may have been sacrificed for profit, as witnessed by recent lead-based toy scandals.
"Most of your toys have been outsourced to other countries where labor costs are lower," Kelly says.
On the bright side, Ginsburg says the declining cost of electronics has helped drive down the price of playthings.
"Toys, games, hobbies and playground equipment are down," Ginsburg says. "I would think that's due to outsourcing and moving toward electronic devices that have become very inexpensive to produce."
6. Apparel: Dress for less
We may be struggling to fill the gas tank or feed the family, but we can take some solace in the fact that the cost to clothe the family has dropped 11 percent during the past decade.
Shepler theorizes that as a society, we have shifted our measure of fashion away from clothing and toward more ostentatious displays of bling, such as plasma TVs and iPhones.
"In a sense, electronics has replaced clothing as the fashionable item," she says. "It's about having the latest iPod or toy instead of apparel as reflecting status.
"The demand for clothing has certainly fallen as more and more shoppers are looking to electronics as being the fashionable item."
Lower-cost foreign imports and volume buying by discount and big-box stores have helped lower price tags. This is particularly true for the cost of boys and girls clothing, which has dropped 23.3 percent and 18.6 percent in 10 years, respectively.
"Children's apparel certainly declined a bit more, likely due to more shoppers going to discounters," Shepler says. "Outlet and big-box stores didn't exist to this extent 10 years ago."
But Ginsburg warns that the quality of those garments may not measure up.
"The length of life of a garment may be a quality factor, but it's not measurable without being able to have someone wear the garment for six months, then wear an American-made equivalent for six months and see the differences between how they wear," he says.
7. Watches: Time to save big
You may not be able to buy time as easily in a slowing economy, but you certainly can tell time for less. The cost of a timepiece fell 6.2 percent in the last decade.
Shepler says for every Rolex, there are hundreds of thousands of Timex watches that account for the Consumer Price Index figure.
"Watches are an item where you do get a little bit of the high-end goods but it's more going to focus on what shoppers are actually buying, which is going to be more of the less-expensive items, and those are going to be bought more at discounters," she says.
In fact, the price of watches, especially with the widespread adoption of digital inner workings, has declined to such a degree that many of us consider them disposable.
"Rolexes haven't really caught on with everybody; they're still buying the throwaway watches -- planned obsolescence," she says. "We would have some of those higher-end watches, but it's certainly not going to make up the bulk of our sample."
The Downside
Kelly says these seven relative bargains may actually exceed their CPI-estimated savings due to the recent bumpy ride of the U.S. dollar.
"If you look at the dollar, for a long time it was falling fairly rapidly, causing some of these prices to hold up a little," he says. "Now, the dollar is stabilizing in terms of its rate of decreasing. If the dollar goes up in value, it makes foreign-made goods cheaper; in other words, it lowers the price of foreign currency so importers can buy those items cheaper."
More from Yahoo! Finance:
• Why It's Smart to Splurge This Holiday Season
• Million-Dollar Giveaways: A Trend of the Times
• Detroit Bailout: 7 Key Questions
Visit the Banking & Budgeting Center
However, there's a downside to falling prices as well, Kelly says.
"When prices are falling, people will postpone buying," he says. "So you don't necessarily want deflation; you want disinflation.
"If you start having prices going down -- as in the housing market right now where housing prices are collapsing -- people say, 'Why should I buy a house now? It's obviously a buyer's market, I'll just wait a few more months and get something even better.'"
Such prudence will likely characterize consumer behavior as the economy slows, world markets struggle to stabilize and the effects of the Wall Street bailout on Main Street become clearer, Kelly says.
"You'll find that even more of those people who have money to spend are going to sit back and wait on the big-ticket items," he says. "Those are durable items that they've already got in hand but maybe don't have the latest high-def, 52-inch version of.
They're going to live with the one they have for six more months to get something better."
Copyrighted, Bankrate.com. All rights reserved.
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