This report from the New York Times is largely anecdotal but not surprising:
In response to the falling value of their homes and high gasoline prices, Americans have become more frugal all year. But in recent weeks, as the financial crisis reverberated from Wall Street to Washington, consumers appear to have cut back sharply. Even with the government beginning a giant bailout of the financial system, their confidence may have been too shaken for them to resume their free-spending ways any time soon….
When the final tally is in, consumer spending for the quarter just ended will almost certainly shrink, the first quarterly decline in nearly two decades. Many economists, who began the third quarter expecting modest growth, now believe the cutbacks are so severe that the overall economy did not expand either, and they warn that a consumer-led recession could be more severe than the relatively mild one earlier this decade….
Yves here. Consumer led recessions ARE more severe than ones due to a contraction in investment or business spending (unless the economy is China with a comparatively small consumer sector). Given that growth in consumption has been funded largely by borrowing, and consumption is at a unsustainable proportion of GDP, a consumer-led down turn was inevitable.
Consumer spending, which accounts for nearly two-thirds of the economy, grew modestly earlier in the year but fell in July and August on an annualized rate. When the government releases quarterly numbers this month, they are expected to show that consumer spending shrank 3 percent or more. That would be the first quarterly decline since 1990, ahead of the 1991 recession, and the steepest since 1981….
“In the last few days, there has been a huge drop-off in foot traffic and almost zero sales,” said Gil Colon, sales manager at Villa Reale, a high-end art and furniture store in Las Vegas, who has laid off five sales people in the last five months, leaving three.
“People have lost their confidence. They have no buying power. They are losing their retirements, their vacation funds, and they are scared to commit to buying anything,” he said.
The picture is just as grim at suburban malls and city boutiques, where traffic is disappearing as retailers brace for what many predict will be a dismal holiday shopping season. Some have responded by reducing the number of sales people or their hours.
Taking a break outside an Office Depot store in suburban Chicago, Dave Cargerman, a 25-year-old sales clerk, said his hours had been cut back. “We got killed during the back-to-school sales,” Mr. Cargerman said. “And that time of year is usually our bread and butter.”
Nearby, employees at Lattof Chevrolet were preparing to close the doors this month on a business that opened in 1936. It may not be the last dealership to go: the percentage of people saying they expect to buy a car in the next six months, on a three-month moving average, has fallen to 5 percent, the lowest figure since the Conference Board started asking about such plans in its consumer confidence survey, in 1967.
“We’re not selling S.U.V.’s and trucks at all,” said Raul Trejo, 24, a mechanic. “We saw it coming.”
The situation is so uncertain that some retailers are simply not even trying to estimate their sales. Pier 1 Imports and Circuit City stores recently withdrew their guidance to Wall Street about earnings and said they would not offer any more predictions this year….
Consumers are cutting back on air travel, whether for business or pleasure. Passenger volume is dwindling even faster than airlines can sideline planes and cut poorly performing routes. At American Airlines, domestic passengers flew 11.7 percent fewer miles in September, while the airline cut 9.4 percent of domestic seats….
In addition, household net worth, which greases spending, fell $6 trillion over the last year, with $1 trillion of that in just the last four weeks, said Mark Zandi, chief economist at Moody’s Economy.com.
The last data point is vital As of August, before the credit crisis worsened, the US had suffered the greatest percentage fall in net worth EVER, worse than any comparable period during the Great Depression.