A Forgone Contusion

Years ago I saw bumper stickers touting “When the going gets tough, the tough go shopping.” Now it seems consumers are pulling in their horns a bit.  Annualized retail sales as reported by the Census Bureau have fallen hard six months running. The Fed is keeping rates low, in part to encourage spending. The Treasury Department has begun spending in our stead, hoping to fill the gap until buyers return en masse to the shopping centers. But who says they will? From the start of this millennium through 2007, your average American increased his spending by 44% according to The Economist, and total household debt rose to 71% of our nation’s total production measured through the end of last year. An aging population, caught in the throes of recession, and having seen their personal wealth evaporate dramatically of late, may decide to cool things down a bit. Having borrowed some $2.3 trillion over the last five years or so, which was then spent on remodeling (19%), investments like stocks (44%), and just stuff (20%), they need to settle down. The problem is all that spending accounted for 77% of America’s growth over that same period. Our economy will definitely be badly bruised if its absence is for a prolonged period.