The downside of a consumer-driven economy.
In the old days — back before the commercial revolution of the late 19th century — the biggest problem in the U.S. economy was often that of production, especially along the simple lines of “How can we produce enough to eat?” The transition away from agrarianism toward industrialization meant that the big problem became that of consumption, i.e., “How can we find adequate markets to clear all our goods?” *
Down this path lay all sorts of interesting implications, for example long-term efforts to open “the China market” and other overseas markets for American goods. For the implication du jour, I turn to this article from the New York Times:
Retailers Report a Sales Collapse
Sales at the nation’s largest retailers fell off a cliff in October, casting fresh doubt on the survival of some chains and signaling that this will probably be the weakest Christmas shopping season in decades.
The remarkable slowdown hit luxury chains that sell $5,000 designer dresses as badly as stores that offer $18 packs of underwear, suggesting that consumers at all income levels are snapping their wallets shut. . . .
Consumer spending represents two-thirds of the nation’s economic activity, and analysts said the striking sales declines at retailers almost certainly portended an extended, severe recession.
This matches Heidi Moore’s report from yesterday’s Blackstone earnings call:
[Blackstone co-founder Steve] Schwarzman . . . sums up by saying that the fourth quarter will probably read very badly for the economy, because consumers were in a financial panic between late September and mid-October. The upshot: severe consequences in the fourth quarter.
When the going is easy, consumer-goods makers can reap large fortunes by making inessentials that tickle consumers’ fancy. But when the going gets tough, there’s little that can persuade consumers frightened about their futures to open their pocketbooks.
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* Yes, the historian in me realizes that I just squished a couple of centuries of complex economic developments into a couple of overly broad generalizations. The historian in me shuddered, but then the blogger in me patted him on the back and assured him that it would be okay.
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Photo by saeru, used under a CC-Share Alike license.
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We, the American public, are in for a major shift, no longer will our economy be driven by the consumer(for the forseeable future). With the values of our homes going down that large ATM know as home equity will begin to dry up for many homeowners.
Dan — I think you’re right that spending habits will be altered in substantial ways for a long time. Besides the major issue of home-equity lending that you point out, there’s the related issue of tighter unsecured lending practices, especially via credit cards.
This is already leading many big retailers to close stores and radically rethink their marketing and expansion plans.
Tim – In the Tampa Trib Business Section was an article on how retailers in malls are closing shop and that’s leaving some mall owners holding the bag….they can’t make their mortage payments…the author said on this front we are only in the 1st inning.
Dan — Interesting. I do believe that we will yet see many, many follow-on effects that are only just beginning to unwind.
Being out of the quicksand in terms of a total financial meltdown doesn’t mean we’re yet out of the woods overall.
[...] The downside of a consumer-driven economy. [...]
Dan-great article, really enjoyed it, but it begs several question 1) Do we want an economy so transfixed on producing goods and services that are purely discreationary? Or do we want to change it? 2) How do we change the economy to reverted to actually making things again, or at least start reducing the amount that consumer products and services account in the economy?