The American Consumer is Not Okay

May 31, 2013 Stephen S. Roach

The spin-doctors are hard at work arguing that falling unemployment, rising home values, and record stock prices mean that the American consumer – the major drag on the economy in the post-crisis period – is finally back. The facts say otherwise.

NEW HAVEN – The spin-doctors are hard at work talking up America’s subpar economic recovery. All eyes are on households. Thanks to falling unemployment, rising home values, and record stock prices, an emerging consensus of forecasters, market participants, and policymakers has now concluded that the American consumer is finally back.

Don’t believe it. First, consider the facts: Over the 21 quarters since the beginning of 2008, real (inflation-adjusted) personal consumption has risen at an average annual rate of just 0.9%. That is by far the most protracted period of weakness in real US consumer demand since the end of World War II – and a massive slowdown from the pre-crisis pace of 3.6% annual real consumption growth from 1996 to 2007.

With household consumption accounting for about 70% of the US economy, that 2.7-percentage-point gap between pre-crisis and post-crisis trends has been enough to knock 1.9 percentage points off the post-crisis trend in real GDP growth. Look no further for the cause of unacceptably high US unemployment.

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0 Comments on this paragraph, 9 in all 9 Comments on this article

Thomas Grzymala Jul 18, 2013

An excellent summation of the way things now stand IMHO. Unless and until we fix our dysfunctional national and, in some cases, state-wide government processes America will regrettably remain in a politico-economic limbo (or purgatory?). To repeat a quote from a seasoned business leader, "Where have all the leaders gone?"

No one of any substance and experience wants to step forward, assume the presidential mantle and be responsible for his/her actions.
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Pierluigi Molajoni Jun 5, 2013

The author doesn't seem to realize that changes in trends of GDP growth cannot affect unemployment in the least, if anything it's the other way around, i.e. change in jobs affecting unemployment may mean a change in the rate of growth of production.
Then just by picking different sub-periods you could show that the growth of consumer demand before the crisis was an untenable bubble financed by unsustainably increasing debt and that what follows is a return to a sustainable consumption growth.
Then we are told that it's a shock that there's no pent up demand but later we are told that because of debt and deleveraging no pent-up demand is to be expected: well, make up your mind.
Debt recessions take 6 to 7 years to wear themselves out, after less than 5 years of course the consumer is not ok!
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Edward Yanquen Jun 4, 2013

And we have to take into account that now, we are in the era of obsolescence. Then, those products should be change even more frequently, however they are not. Could this be produced by a misdefinition of the durable goods over the years? Or maybe, have we found cheaper substitutes?
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Avraam Dectis Jun 3, 2013

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Things would be much better if we had a Congress that could pass a meaningful infrastructure bill.
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Mark Pitts May 31, 2013

Insightful analysis.
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Lyle Sykora May 31, 2013

Is this the best an expert can do?

He fails to mention the our wage levels have been flat since 1970; corporations holding their profits overseas to avoid paying, God forbid, taxes; the huge number of jobs our corporations have sent over seas; our obscene income distribution curve; the fact that many if not most of our college graduates are deeply in debt and so forth.

So where is the purchasing power to power the recovery supposed to come from?
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Frank O'Callaghan May 31, 2013

How can the American consumer come "back"? Too much inequality has deprived them of wealth.
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Jim Kelley May 31, 2013

Thankfully growth is finally stopping. Thankfully we are converting resources to waste a little more slowly. Thankfully the ill-advised bubble in wage employment during the last 2 decades is regressing to a more sustainable mean(more the .50s than the .60s ratio). Now if the government would step aside and give consumers a true value in transportation,health insurance,education and housing the future could be a little brighter. The current choices have negative cost benefit value and are only sustained by cheap debt.
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Stephen Stanley May 31, 2013

Nice figures - what's the margin of error? 0.9 looks small but what's the range it actually could be in?
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