Business Week and consumer crunches

Their article is worth it if only for the image:

bw pic

Eh? Eh? It’s actually horizontal in the print version – nice of them to build a web version specially for us. The article proper doesn’t have much to offer, beyond that which is already playing out: household wealth is declining with house prices, ergo consumption is declining. Perhaps to the point of recession, but definitely to the point of shitty macro numbers for a long time to come: one can compare, for example, those expenditure forecasts with the new and improved numbers being put out by the Federal Reserve.

Fed chart 1

Sixteen pages’ worth of enjoyable reading (opinions differ).

Back at Business Week. They conclude also that export earnings are likely to be the real stabiliser for the US macroeconomy:

Conventional wisdom is that consumer spending makes up 70% of gross domestic product. While technically true, that figure is deceptive, because so much of what Americans buy these days is made overseas. Compared with the early 1980s, which was the last time consumers cut back, much more of what Americans buy is made abroad. Today, imports of consumer goods and autos run about $740 billion a year. That’s fully one-third of consumer spending on goods outside of food and energy. As a result, most of the spending cutbacks won’t cost Americans their factory jobs—those factory jobs have mostly fled offshore anyway. Workshop China, in contrast, will get hurt.

What’s more, it’s still a low-rate world for most nonfinancial corporations, which have access to relatively cheap funds for expansion and capital investment. Asia and Europe are continuing to expand, with German and French growth accelerating in the third quarter. Exports of aircraft and other big items are likely to rise, too, supplying the U.S. economy with an extra lift. In other words, globalization has made consumers less central to the American economy.

Something else I didn’t know what that American credit cards (as held, and presumably with the existing lines of credit) still have USD4tr left to be spent (on). God help the economy if we do, of course.


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