U.S. shopper: from muscleman to weakling
Americans shoppers have not only been the driving force behind the U.S. economy. They are also a kind of international public good.
The $10 trillion of U.S. consumption is not just 70 percent of the U.S. economy. It is around 16 percent of the global economy.
In short, American mall-junkies are hard to replace. So today’s reminder of the fragility of the consumer — courtesy of July’s retail sales figures — is not just bad news for the United States [nN13227479].
Through most of the past decade U.S. consumers resembled Arnold Schwarzenegger’s unstoppable robot in the Terminator movies. They seemed capable of taking blows that would have floored lesser consumers. Shoppers powered through business downturns, stock market collapses and even the 9/11 attacks.
This extraordinary resilience was attributed to the indefatigable optimism central to the American psyche. In retrospect it may have had as much to do with rising house prices, which allowed consumption to rise faster than income.
Now the tables have turned. It is likely that consumption will lag behind earnings growth. Even before Americans try to rebuild their wealth, many will focus on paying down debt and accumulating rainy-day savings.
Sluggish wage growth and job losses will make this task harder and more painful. Those consumers who feel inclined to shop may be hampered by tight credit conditions. In short the U.S. consumer could turn from muscleman to weakling.
Much faith has been put in “Cash for Clunkers” to rekindle the animal spirits of the U.S. consumer. It certainly seems to be cushioning the fall in retail sales.
But it remains to be seen whether the program will simply rob growth from the future. Beneath the gimmicks, the desire to spend is very subdued. Taking out autos and gasoline, sales have now fallen in each of the last five months.
As Paul Dales of Capital Economics warns, “these data are a stark warning that households are in no fit state to drive a decent economic recovery.”
Very soon the U.S. is to follow Germany and France out of recession [nLD498855]. However, the weakness of U.S. consumption is likely to limit GDP growth in America next year to one percent. For years after it may cap growth at levels far from robust.
There is also no heir apparent to the U.S. shopper. China’s consumption, while growing at an impressive rate, is still only around $1.5 trillion.
“This is not nearly enough to have a significant impact on the global economy,” says Rachel Ziemba, an economist at Roubini Global Economics.
A more balanced world economy demanded some retrenchment from U.S. consumers. But economists may get too much of what they wished for.