News & Politics

How Your Pedicure Could End the Recession

Pamper-me style spending is the best thing for the economy.

We've heard the nation's leaders warn that we can't really dig ourselves out of this economic ditch until consumer confidence returns—in other words, until we all feel safe enough to get out there and shop. But this plan of action feels rash. Excessive, reckless, down-payment-in-shoes-style consumption is what got us into this mess. And who needs another pair of strappy sandals anyway? But there is one kind of shopping that can help make a difference. It's the most indulgent, frivolous, pamper-me style shopping—the kind you've probably become too monkish to consider. But it's the best thing for the economy, and for your toes, especially if you're wearing last year's styles.

One of the best ways to stimulate the economy yourself is to spend money on personal services, according to Dean Baker, founder of the Center for Economic Policy Research. "Personal services" is finance code for manicures and pedicures, facials, babysitters, lawn care, and dog groomers. Apparently, this is a more efficient and effective form of consumerism, for yourself and the economy as a whole. Service industries generally have low overhead and spend more of their revenue on paying staff than a typical store. They are also often locally owned, keeping your dollars not just within the country's borders, but in your own community.

Retailers spend most of their revenue on two things: merchandise and labor. They have to pay for the physical goods—which are frequently manufactured overseas (we'll get to that later). They also have to pay to store the goods in a warehouse, ship them to the store, and then ship them back if they don't sell. But in the service industry, the goods and the labor are one in the same. The product your manicurist is selling is her time, knowledge, and skills. That means a larger percentage of each dollar you spend goes directly toward paying her, and less is lost to the fixed costs of doing business.

Spending on services also allows your money to stay in your community longer. The services industry is made up primarily of small mom-and-pop outfits rather than national chain stores. Think of your neighborhood nail salon or the day spa in the town center. Any profits from their businesses are boosting the local economy, and that's stimulus you're likely to see.

Let's say you spend $100 on one of those exfoliating facials at your local spa. (Your pores don't clean themselves just because it's a recession, you know.) Your esthetician pockets most of that amount—$90—and then uses it to pay for a hair cut at a local salon. The stylist then takes most of that money—$80—to pay the dogwalker. Your initial $100 expenditure has actually resulted in $270 in consumer spending right there in your neighborhood. And the chain continues down to the last cent.

The key is distribution. Ultimately, any time you spend money, you are helping to boost the global economy. But in this scenario, your money circulates within a defined area. It spurs economic activity in your neighborhood and directly employs people that you know.

"In some cases you spend it in a way in which a lot of people make a little money, or in some cases you spend it so that one person makes a lot of money," said Brent Moulton, associate director at the Bureau of Economic Analysis.

Now let's say you spend the same $100 on a new sweater. Part of that money pays the wages of the person who sold it to you, but a large portion would also go to the people who made the sweater—and those people probably do not live in the United States. You're also paying for transporting the sweater from a distant shore to your local store, with taxes and fees eating up your $100 every step of the way.

Mark Zandi, chief economist with Moody's, estimates that roughly 20 cents of every dollar spent on goods in America winds up overseas. At the Gap—where I have admittedly purchased my fair share of striped tees—about 66 percent of total revenue goes toward paying for the merchandise and rent.

If you're really not a facial, dog-grooming kind of person, there are other things you can buy to maximize the economic bang for your buck. Baker suggests food, particularly produce, as another smart purchase because much of it is grown in the United States. Anything made in American is useful right now. My husband and I, for example, are considering a new dining room table made by a local craftsman with wood from Pennsylvania.

Tags: center for economic policy research, economy, facials, moody's, pedicures, personal services, recession

Ylan Q. Mui is a financial reporter at the Washington Post covering retail and consumerism.

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