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If you look at the data on credit, it's clear there's a massive shift underway. Consumers have become fanatical about cutting back on debt. October credit fell by $3.5 billion (-1.7% year over year). September's decline was dramatic, $8.7 billion. October marked the ninth month of declines, a trend that has not been seen in 66 years. This is unlikely to change until consumers feel more confident about the economy and their own personal situation. It remains unclear if the recession is well and truly over, although indicators suggest unemployment has peaked, it's likely consumers remain unconvinced.




Posted by Ed Cotton From this week's New Yorker.

"As people try to rebuild their nest eggs, the savings rate is bound to remain higher than it was a few years ago. And what we spend our money on will change, too; housing costs, which were the central cause of the rise in Americans’ indebtedness in recent years, should eat up less of our budgets in the future. But the evidence for a radical shift in the way we consume seems more like the product of wishful thinking (there’s a palpable longing among pundits for Americans to become more frugal) than anything else. In many categories, spending has dropped only slightly, if at all. And, while these are very tough times for retailers who believed that spending could only go up, retail sales rose briskly in August. Before we go proclaiming this the age of the American tightwad, a little perspective is in order. Even after the worst recession of the past seventy years, retail sales this year will be about where they were in 2005. Does anyone really think that four years ago Americans were misers?"

I don't believe this is a binary equation, some people will have to become more frugal, others with more confidence and means will certainly get back to spending. The challenge is to understand who these different groups are.


Posted by Ed Cotton The Economist's blog offers a sobering perspective on the future of consumer spending in the US.

"If American households have been forced to debt-finance spending on necessities, and if debt financing is unlikely to be as cheap or available in the future as it was in the recent past, then households will either have to find ways to reduce the costs of housing, transportation, health care, child care, and so on, or consume less, or work more. None of those options are likely to be comfortable. Americans have often been described as "living beyond their means", but I don't think most people realised that that unaffordable life primarily meant unsustainable access to basic necessities."

The suggestion is that there is unlikely to be a return to normality and for many Americans, any spending beyond the basic necessities, is going to be scrutinized and analyzed with rigor.


Posted by Ed Cotton According to some polls, the crisis on Wall Street is having a significant impact on overall consumer confidence with obvious implications for spending in Q4.

Obviously, it's more than just Wall Street, but, it clearly isn't helping an already nervous nation.

IPSOS- September 19th..

- 60% of Americans doubt the government's ability to restore confidence post-crisis

- 90% believe events will have a negative impact on the economy

- 76% believe the home mortgage crisis will continue to worsen

- 45% believe the economy will be worse off six months from now

Zogby Poll- September 17th

- 44% of Americans will spend less or a lot less on gifts this year than in 2007

USA Today/Gallup Poll- September 15th

- 23% of Americans believe the country is in a depression

CBS/New York Times Poll-September 12th-16th

- 39% rate the condition of the economy as very bad

- 39% rate the condition of the economy as fairly bad

- 61% believe the economy is getting worse

Things can shift with changes in gas prices and with market moves as we've just seen this morning, but the overall mood is very negative and probably will not pick up until there are signs of life in the housing market.

According to the experts, the IMF (First Deputy Director John Lipsky), speaking in Washington on Thursday believes this could happen towards the end of 2009.

"First, as noted earlier, oil prices have come down sharply in recent weeks. This should reverse a significant portion of the adverse terms-of-trade effects arising from the more than 60 percent increase in oil prices during 2008 and the erosion in purchasing power and real wages being felt by most advanced economies. In the United States, if oil prices remain at current levels, the implied boost to real disposable income will rival the value of the income tax rebates. Indeed, in our projections, we expect a modest rebound in consumption in both the United States and euro area over the course of 2009.Second, it is plausible to anticipate that the U.S. housing market will find a bottom in 2009. Already, the inventory overhang is diminishing, while affordability measures are returning to levels that appear much more consistent with past experience."

Looks like it's going to remain very tough for at least another year.




Posted by Ed Cotton