Americans cut back sharply on spending

[Alex+R 0]

By MICHAEL BARBARO and LOUIS UCHITELLE

Published: January 14, 2008

Strong evidence is emerging that consumer spending, a bulwark against recession over the last year even as energy prices surged and the housing market sputtered, has begun to slow sharply at every level of the American economy, from the working class to the wealthy.

The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth. Such a decline would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.

There are mounting anecdotal signs that beginning in December Americans cut back significantly on personal consumption, which accounts for 70 percent of the economy.

A raft of consumer companies — high-end stores like Nordstrom and Tiffany, and middle-of-the-road ones like Target and J. C. Penney — reported a pronounced slowdown in growth last month, and in several cases an outright drop in business.

American Express said that starting in early December the growth in the rate of spending by its 52 million cardholders, a generally affluent group of consumers, fell 3 percentage points, from 13 percent to 10 percent, the first slowdown since the 2001 recession.

And consumer confidence, an important barometer of economic health, has plunged. Andrew Kohut, president of the Pew Research Center, says consumer satisfaction with the economy has reached a 15-year low, according to the firm’s polling.

Even wealthier consumers, who were seen as invulnerable to rising gasoline prices and falling home values, are feeling the squeeze.

“People are clearly concerned that we are headed into a recession,” said Stephen I. Sadove, the chief executive of Saks Fifth Avenue, the upscale department store whose runaway growth throughout much of the year slowed markedly in December.

[...]

Source: NY Times

[Ban Hammer 13,334]

here it comes. not unexpected either.

good post alex.

[Alex+R 0]

This subject scares me, I gotta say!

[eric&gen 0]

I notice some businesses shutting down and lots houses going up for sale its a sign for the worse so start saving your money.

[GaryC 7]

The economy goes through cycles. We had 5 or 6 good years and now it's time for some lean times. The measure of the health of the economy is how long the downturn lasts. This is all normal folks.

[mawilson 2,133]

Cutting back on spending is probably a good thing:

At the core of the problem is one of the most insidious characteristics of an asset-

dependent economy - a chronic shortfall in domestic saving. With America's net

national saving averaging a mere 1.4 per cent of national income over the past

five years, the US has had to import surplus saving from abroad to keep growing.

That means it must run massive current account and trade deficits to attract the

foreign capital.

America's aversion toward saving did not appear out of thin air. Waves of asset

appreciation - first equities and, more recently, residential property - convinced

citizens that a new era was at hand. Reinforced by a monstrous bubble of cheap

credit, there was little perceived need to save the old-fashioned way - out of

income. Assets became the preferred vehicle of choice.

With one bubble begetting another, America's imbalances rose to epic proportions.

Despite generally subpar income generation, private consumption soared to a

record 72 per cent of real gross domestic product in 2007. Household debt hit

a record 133 per cent of disposable personal income. And income-based measures

of personal saving moved back into negative territory in late 2007.

None of these trends is sustainable. It is only a question of when they give way

and what it takes to spark a long overdue rebalancing. A sharp decline in asset

prices is necessary to rebalance the US economy. It is the only realistic hope to

shift the mix of saving away from asset appreciation back to that supported by

income generation. That could entail as much as a 20-30 per cent decline in overall

US housing prices and a related deflating of the bubble of cheap and easy credit.

Those trends now appear to be under way. Reflecting an outsize imbalance between

supply and demand for new homes, residential property prices fell 6 per cent in

the year ending October 2007 for 20 major metropolitan areas in the US, according

to the S&P Case-Shiller Index. Most likely, this foretells a broader downturn in

nationwide home prices in 2008 that could continue into 2009. Meanwhile, courtesy

of the subprime crisis, the credit bubble has popped - ending the cut-rate funding

that fuelled the housing bubble.

As home prices move into a protracted period of decline, consumers will finally

recognise the perils of bubble-distorted saving strategies. Financially battered

households will respond by rebuilding income-based saving balances. That means

the consumption share of gross domestic product will fall and the US economy will

most likely tumble into recession.

...

It is going to be a very painful process to break the addiction to asset-led behaviour.

No one wants recessions, asset deflation and rising unemployment. But this has always

been the potential endgame of a bubble-prone US economy. The longer America

puts off this reckoning, the steeper the ultimate price of adjustment. Tough as it is,

the only sensible way out is to let markets lead the way. That is what the long

overdue bursting of America's asset and credit bubbles is all about.

The writer is chairman of Morgan Stanley Asia

The FT

[Amby 490]

I enjoy cutting back on spending especially when I'm broke

[Ban Hammer 13,334]

i may have to cut back to one or two pizzas a week

[almaty 19]

bro charels, don't skimp on the beer

[eric&gen 0]

i may have to cut back to one or two pizzas a week

You also need to cut back on the adult video stores.

[Ban Hammer 13,334]

i may have to cut back to one or two pizzas a week

You also need to cut back on the adult video stores.

never!

[Hilarious Clinton 452]

The economy goes through cycles. We had 5 or 6 good years and now it's time for some lean times. The measure of the health of the economy is how long the downturn lasts. This is all normal folks.

yup. cycles.... just like the climate.

[Nizzy 1]

i may have to cut back to one or two pizzas a week

You also need to cut back on the adult video stores.

never!

[simple_male 1]

By MICHAEL BARBARO and LOUIS UCHITELLE

Published: January 14, 2008

Strong evidence is emerging that consumer spending, a bulwark against recession over the last year even as energy prices surged and the housing market sputtered, has begun to slow sharply at every level of the American economy, from the working class to the wealthy.

The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth. Such a decline would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.

There are mounting anecdotal signs that beginning in December Americans cut back significantly on personal consumption, which accounts for 70 percent of the economy.

A raft of consumer companies — high-end stores like Nordstrom and Tiffany, and middle-of-the-road ones like Target and J. C. Penney — reported a pronounced slowdown in growth last month, and in several cases an outright drop in business.

American Express said that starting in early December the growth in the rate of spending by its 52 million cardholders, a generally affluent group of consumers, fell 3 percentage points, from 13 percent to 10 percent, the first slowdown since the 2001 recession.

And consumer confidence, an important barometer of economic health, has plunged. Andrew Kohut, president of the Pew Research Center, says consumer satisfaction with the economy has reached a 15-year low, according to the firm’s polling.

Even wealthier consumers, who were seen as invulnerable to rising gasoline prices and falling home values, are feeling the squeeze.

“People are clearly concerned that we are headed into a recession,” said Stephen I. Sadove, the chief executive of Saks Fifth Avenue, the upscale department store whose runaway growth throughout much of the year slowed markedly in December.

[...]

Source: NY Times

We are already in another recession. Fed is likely to cut interest rate further by 0.5% when they will meet at the end of this month.

[Hilarious Clinton 452]

American should save more.