There is a not-too-bad article up at the Wall Street Journal on how consumers have hunkered down and are unlikely to resume their freespending ways any time soon. Even though it has useful on the ground observations about the new consumer austerity, it repeats the oft-repeated tidbit that consumer spending is 70% of the economy.
Make that “was”. 70% (depending on the metric used, it could be 71% or 72%) was not sustainable. Some of the cutback is due to worries about the economy. Even though the article does mention that consumers are starting on what may be “a prolonged period of thrift” no where does the article acknowledge that the consumption level was unsustainable and debt fueled. We are in the midst of a secular change, not merely a prolonged recession responses.
From the Wall Street Journal:
Major retailers reported that American consumers are continuing to hunker down, casting a cloud over the durability of the U.S. recovery and underscoring the importance of overseas demand in restoring the world economy to health.Retailers across the spectrum provided foreboding reports. Discounter Target Corp. reported that sales at stores open at least a year were down 6.2% from a year earlier in the quarter ended Aug. 1, while luxury purveyor Saks Inc. reported a 15.5% drop in same-store sales over the past quarter as shoppers stuck to buying basics. Building-supply chain Home Depot Inc. saw total sales drop 9.1% in the quarter ending Aug. 2, and it reaffirmed expectations of a 9% sales drop this year.
A cashier at Target in Los Angeles checks the authenticity of $100 bills. Some retailers don’t expect conditions to improve until next spring…
American consumers appear so shaken by the worst recession since the Great Depression — and so pinched by unemployment, stagnant wages and stingier lenders — that they are reining in spending on all but basics. Economists also see an upturn in U.S. household saving as the beginning of a prolonged period of thrift…..
Most economists expect growth to resume in the second half of this year at a modest pace, as U.S. businesses rebuild depleted inventories and the housing market stabilizes. Economists who see a second-half rebound point to a global-manufacturing revival and recent reports that the economies of France, Germany and Japan managed to expand in the second quarter. The Commerce Department said earlier this month that U.S. exports in June rose 1.9% from May after rising 1.6% the month before.
But U.S. consumers could be the counterweight. In a survey of economists this month, The Wall Street Journal asked if a substantial increase in consumer spending was needed for sustained growth. Of the 43 economists who responded, 60% said yes….
Earlier this week, the Federal Reserve said a July survey of banks found continued tightening of lending standards as well as a diminished appetite for borrowing among consumers. About a third of banks said they tightened lending standards on credit cards and other consumer loans since April. No banks reported relaxing them.
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Some time ago CalculatedRisk had some graphs on the savings rate combined with mortgage equity withdrawals. The conclusion then was, that a large part of the perceived rise in the savings rate was due to the closing of the home ATM. Since other lines of credit tighten too and unemployments rises, I concluded that there still isn't a change in US consumers mentality towards true frugality visible. They simply do not have the credit available to spend more. If they had, they probably would resume spending(which for me as a thrifty german is totally beyond comprehension). So in my opinion the question of whether we see a secular change in consumption or just a unavoidable reaction to the recession at this point cannot be answered.