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Americans are tightening their belts, and that spells change for the economy. The Consumer Age is hardly dead -- consumers won't suddenly lose their affection for new cars, fashions and new technology. But the age of superconsumption may be.
Consumer spending will gain about 1.7% a year in 2008 and 2009, after growing between 2.8% and 3.6% a year for the past five years.
"I think we've entered a new era in consumer spending," says Lyle Gramley, senior economic adviser at the Stanford Washington Research Group and a former Federal Reserve governor. "For the next few years at least, we're going to see a more disciplined consumer."
The result: A big hit to economic growth. From 1999 to 2007, the share of gross domestic product coming from consumer spending barreled from 68% to 72%, far more than that of most other developed economies. In the United Kingdom, consumers account for 66%. In Germany, 59%. And in Canada and Japan, 57%.
A drop back to 68% in the U.S., as we expect over the next three years, amounts to lopping about half a trillion a year off economic activity. That's three times as much as the total stimulus this year. And only about half of that stimulus will actually pump up the economy. A third of the taxpayer rebates will be saved or used to pay off debt. Business breaks won't spur more spending, they'll just add to profits.
Some industries will feel the pinch more than others:
- Automakers, especially those in Detroit. Already skidding and now headed onto a more treacherous track, they'll find it tough to marshal the resources for new models -- key to their turnaround plans. Their market share will deteriorate further and drag small suppliers down with them.
- Advertising firms. They're facing a buzz saw, with many customers -- food, retail, airlines, financial services, etc. -- cutting spending.
- Retailers, especially specialty apparel stores. Some will be swallowed up, and some will go belly-up.
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POSTED BY: Bruce Allen (February 23, 2008 02:09 PM)
If we all took a moment to think about the issue of rising, the answer to this problem would be plain as the nose on our face. Trade the common stocks of the companies that are jacking up the prices of oil, food, metals, etc. Come on people. Don't be victims. Grab some of those price hikes by way of capital gains. Then pay off that cap gains tax bill and everyone will be happy.
POSTED BY: Mr Pasadena (February 24, 2008 01:39 AM)
This is actually good. Living within your mean is what all Americans should do.
POSTED BY: Being thrifty (February 24, 2008 12:08 PM)
It's sad but true. America has always been a nation of spenders and borrowers. It's why we're in the current situation we are now. I just hope given the current housing crisis, the government doesn't make things worse and continues to try to "bail out" homeowners who bought houses they couldn't afford. The current recession, housing crisis is all a response to years of overspending and borrowing. The government needs to let the markets correct themselves.
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