I was struck by this headline which led a Tuesday post in Economix, the economics blog of the New York Times—”Consumer Spending Declines: A Historical Oddity.”
Sometimes these sorts of teasers are not great indicators of a more nuanced analysis that follows, but in this case the headline synopsis pretty well captured the plot.
“That the American consumer is cutting back spending is blindingly obvious these days, but it is still hard to overemphasize this central feature of the current recession. Americans borrowed like crazy for years against their home values, which have now fallen and are dragging consumption down with them.
“The sustained decline in consumer spending is also—as the European Central Bank points out in a tight piece of work synthesizing features of past recessions—a historical oddity of the first order.”
That analysis is not, I think, quite so tight. Here’s a chart that measures the cumulative percent change in real personal consumption expenditures from the beginning of each U.S. recession since 1960 to the lowest point of those expenditures over the recession’s course:
The first very obvious feature of this picture is that there is nothing like a typical recession pattern when it comes to consumer spending. The second obvious feature is that the fall in household consumption in the current downturn looks entirely unremarkable when stacked up against past episodes.
For those of you still reading, it would be fair of you to remind me that the current recession is not over, so the record is yet incomplete. Though personal consumption expenditures actually increased in January and February, the most recent retail sales report might warrant caution. In fact, Economix has followed up with a cross-recession comparison of retail sales that definitely puts the current recession in a relatively bad light. That’s fine, though I would note that retail sales are only a piece of overall personal consumption expenditures, a piece that does not really capture the increasing share of spending on services that has occurred over the postwar period.
But even if the turnaround in overall consumer spending proves durable, it is not entirely clear that there is much solace to be taken from such a development. If you are inclined to look to the darker side of things, the fact is that a turnaround in consumption generally comes well before a recession ends. In the long and relatively severe recessions of 1973–75 and 1981–82, consumer spending bottomed out a full year before the economy turned around in general. (The bottom was eight months before the end of the recession in the 1969–70 and 2001 recessions and two months before the end in the 1960–61, 1980, and 1990–91 recessions.)
For lots of reasons, then, I wouldn’t want to overweight good (or even benign) news from the consumer spending front. But historical oddity? I don’t believe so—yet.
Originally published at Atlanta Fed’s Macroblog and reproduced here with the author’s permission.
3 Responses to “Abnormal consumer spending—not quite”
Those who endured the great depression lavished their children, “the baby boomers,” with the consumption with which “they themselves had been deprived.” By the time this great recession is over, the children of the baby boomers may embrace a return to a more austere (savings) ethic – not unlike that of the ECB.
This current economic situation reminds this baby boomer of the stories & advice my great-grandmother passed along to me regarding the collapse of the 1870′s. “… boomers may embrace a return to a more austere (savings) ethic..” . Heck, my kids are all on board with being frugal, not trusting bankers or financial services advisers and in saving every copper cash they can. We all realize that being “Chinese” with our money, ie: no credit-pay in cash including home & auto purchases and in realizing that cash is an investment class are the end result of this age.It is just too bad I failed to remember the lessons passed along to me by someone that had lived through this before. However, that does not mean that I or my children & grandchildren will ever forget it again.
I wouldn’t bet that the consumer will be exhausted for a long time. The Masters of the Universe will probably devise some new, innovative ways for the consumer to resume his/her role as the primary driver of the economy. If not in reality, then the statistics can be massaged to create the appearance of reviving consumption.