Wednesday, June 10, 2009
Counting On A Consumer-Led Recovery?
Yesterday's Wall Street Journal presented a chilling chart pertaining to consumer debt.
Since 70% of US economic spending comes from the consumer, that segment's ability to finance further spending would seem to have a lot to do with any imminent, sustainable recovery, would it not?
According to the chart, sourced from the Fed, consumer household debt as a percentage of disposable income has remained above 120% since roughly 2005.
Whatever increased savings have occurred in the past six months has had little impact on overall consumer indebtedness.
The visual in the chart makes clear how the rate of increase in this measure moved up from a clear inflection point in about 1999. Thus, we've had nearly a decade of pretty much monotonic growth in this debt/income measure.
That's not going to go away very quickly.
Since federal stimulus spending does not lead to the same quality of jobs as those in the private sector, recent jobless increases are only going to exacerbate this picture. Either spending will slow due to joblessness, or debt will be paid off, and savings will effectively rise. Both will hamstring consumer spending.
Don't expect a sudden lift to the US economy from domestic consumer spending anytime soon.