THERE is no shortage of explanations for the economy's maddening inability to leave behind the Great Recession and start adding large numbers of jobs: The deficit is too big. The stimulus was flawed. China is overtaking us. Businesses are overregulated. Wall Street is underregulated.
But the real culprit - or at least the main one - has been hiding in plain sight. We are living through a tremendous bust. It isn't simply a housing bust. It's a fizzling of the great consumer bubble that was decades in the making.
The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago - and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.
The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover.
The past week brought more bad news. Retail sales in June were weaker than expected, and consumer confidence fell, causing economists to downgrade their estimates for economic growth yet again. It's a familiar routine by now. Forecasters in Washington and on Wall Street keep saying the recovery's problems are temporary - and then they redefine temporary.
If you're looking for one overarching explanation for the still-terrible job market, it is this great consumer bust. Business executives are only rational to hold back on hiring if they do not know when their customers will fully return. Consumers, for their part, are coping with a sharp loss of wealth and an uncertain future (and many have discovered that they don't need to buy a new car or stove every few years). Both consumers and executives are easily frightened by the latest economic problem, be it rising gas prices or the debt-ceiling impasse.
Earlier this year, Charles M. Holley Jr., the chief financial officer of Wal-Mart, said that his company had noticed consumers were often buying smaller packages toward the end of the month, just before many households receive their next paychecks. "You see customers that are running out of money at the end of the month," Mr. Holley said.
In past years, many of those customers could have relied on debt, often a home-equity line of credit or a credit card, to tide them over. Debt soared in the late 1980s, 1990s and the last decade, which allowed spending to grow faster than incomes and helped cushion every recession in that period.
Now, the economic version of the law of gravity is reasserting itself. We are feeling the deferred pain from 25 years of excess, as people try to rebuild their depleted savings. This pattern is a classic one. The definitive book about financial crises has become "This Time Is Different: Eight Centuries of Financial Folly," published in 2009 with exquisite timing, by Carmen M. Reinhart, now of the Peterson Institute for International Economics, and Kenneth S. Rogoff, of Harvard.
You can read the rest of the story here. Correct me if i'm wrong but it just seems like the biggest change is people are only spending money they have. WHY is that so shocking? People are simply learning to live within their means. Instead of charging ish to their credit cards, they are only spending money they actually have. *gasps* I'm appalled! No I'm not.
I remember my grandmother spoiling my excitement after I got my first credit card. I had dreams of buying fancy things but she told me to pay it off and then get rid of it. I told her I couldn't and explained the way credit scores work. She told me it was all a trap to keep me in debt and that I should only spend the money I have. I remember her telling me if I didn't have the money to buy something then it wasn't meant for me to have it. I dismissed her comments but she was right. At first all I did was pay the minimum payment because I didn't know any better. I saw it like an advance. I could swipe the credit card and take home the goods but I didn't have to use my own money. I finally listened after 4 months of not seeing the balance decrease and I paid it off.
I think consumers are starting to embrace living within our means and companies are starting to see that. Are they hurting? Of course. Now consumers have the attention of big biz and its time to make a change. They will have to be innovative to get people to spend. This means simply having a sale is not enough. I'm curious to see where this will lead us.
