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Keep your eye on consumption

Posted by: Michael Mandel on September 08

The Fed bailout got all the news this weekend, as it should. But don’t forget the weak job report from Friday. The combination of employment woes, falling house prices, and the credit crunch means that we are about to move into the steep downleg of the consumption bust.

I’m in agreement here with Nouriel Roubini, who writes:

It is by now clear that the shopped-out, saving-less and debt-burdened US consumer is on the ropes and that there will be a significant and persistent contraction of real consumption for the next few quarters. About a dozen separate negative headwinds – to be described in detail in this note - are now hitting the US consumer while the positive effects on consumption of the tax rebates are already fading away.

That rebate boost was supposed to stimulate consumption until august of this year instead after a recovery of retail sales, real personal spending and consumption in April and May real retail sales and real personal consumption spending have fallen already in June and July. So consumers stopped consuming in spite of the tax rebates instead of spending such rebates (so far only 30% of them have been spent). This suggests that real consumption will certainly fall in Q3 and will continue to fall for a while into the middle of 2009. Real consumption did not fall in the 2001 recession and you have to go back to the 1990-91 recession to see a single quarter of negative consumption growth.

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Reader Comments

Joe Cushing

September 9, 2008 07:42 AM

Disturbing for those of us who are graduating from grad school and want to change jobs. Scary for those of us who are senior undergrads and don't even have jobs.

How do they determine who spent and who didn't spend their checks? I bought a freezer at that time but I have more than the $200 of left over money in the bank. I have more than the entire check in the bank. Did I save the money or did I spend it? I think I saved it but maybe I show up as a spender because of the freezer. What I would tell a pollster, who asked me, is I don't know. The rebate was such a small amount of money, it just kind of blended in.

Brandon W

September 9, 2008 12:14 PM

I've been saying for a long time now:
"What does it say about our society that the economy would likely collapse if everyone bought only what they truly need, and instead measured the increase in their quality of life by the number of healthy relationships they had with friends and family?"

An economy based on disgusting, wasteful swarming over-consumption is worse than a planetary infestation of cockroaches. At least the cockroaches' consumption is serving a biological purpose.

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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