Americans are now spending fewer dollars
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The reluctance to spend has led to sharpest rise in savings rate
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A collapse of income has not caused this decline in spending.
— FILE PHOTO
EARNINGS PRESSURE: Shoppers at Santee Alley in the downtown Los Angeles Fashion District. American spending on non-durable goods like food and clothing is down for the first time since the 1990s.
For the first time since World War II, Americans are spending fewer dollars than they spent a year earlier.
That reluctance — or inability — to spend has led to the sharpest rise in the savings rate in this country since the government began calculating the statistic in the 1950s.
Home ownership
``People’s attitudes toward credit and home ownership are undergoing a fundamental shift,” said David A. Rosenberg, the chief economist and strategist of Gluskin Sheff, a money management firm based in Toronto.
Rosenberg said he expected that the savings rate, which rose to a 14-year high of 5.7 per cent of disposable income in April, would continue to grow until it surpassed the record high of 14.6 per cent, set in May 1975, when the country had just emerged from a severe recession and Americans were pessimistic about the country’s economic outlook.
Trends can be found in both personal consumption spending and savings rates using three-month moving averages, to smooth out gyrations.
Over the three-month period, the savings rate averaged 4.8 per cent.
Until this cycle, the smallest year-over-year rise in consumption spending was a 1.8 per cent increase in the 12 months through April 1961, a period that also ended shortly after a recession concluded. But the year-over-year figures have been down in every month of 2009.
Unemployment
A collapse of income has not caused this decline in spending. While government figures show that wages are down because of rising levels of unemployment, that has been more than offset by lower tax collections and by a sharp increase in government transfer payments as the economic stimulus measures take effect.
The figures on spending are in nominal dollars, not adjusted for inflation. Real consumer spending, adjusted for inflation, fell for brief periods during recessions in the mid-1970s and the early 1980s. But in neither case did the decline last as long, or go as deep, as the current one.
The sharpest falloff in consumer spending in the current cycle was in the purchase of durable goods like vehicles and furniture. That decline seems to have stabilised. Spending on nondurable goods like food and clothing is also down for the first time since the 1940s, and is continuing to fall.
Consumer spending on services is still rising, albeit at the lowest level in memory. A large part of that increase reflects rising payments for medical services, which have continued to take more money even as the recession deepens.
At its worst, late last year, spending on durable goods was down 12.6 per cent, year-over-year. That decline, while the largest in more than 50 years, was not nearly as great as the decline in production that took place as the financial crisis cut off credit for trade financing.
“The demand numbers never fell like the production, inventory and trade numbers,” said Robert Barbera, the chief economist of ITG, a research firm. “You can have a rebound for all these numbers,” he added, even if demand does not recover.
Exports from countries like China do appear to be picking up, a fact that has encouraged speculation that the global recession may almost be over, if it has not already ended. But it remains to be seen whether demand will rise.
If American consumers remain cautious, as Rosenberg forecasts, a real recovery may depend on an increase in demand from places other than the United States. — © 2009 The New York Times News Service
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