Monday, July 18, 2011

The consumer problem...  

Relying on consumer spending for 70% of our economy (although this number is debatable) has a serious downside:
But the real culprit — or at least the main one — has been hiding in plain sight. We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.
The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.
The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover. [More]
This is the reason that the now immanent cutbacks in federal spending are probably going to prove badly timed and recessionary. As I have said before, I argued for fiscal restraint during the flush years, and will again, but not now.

However, most folks don't feel like cutting back when times are good. It is the nature of human culture, so we are faced with doing good things at not so good times.  

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