Slimmer wallets, richer lives?
For at least a generation, commentators have declared that Americans buy too much and borrow too much, chaining themselves on a stressful treadmill of work-and-spend. Wouldn’t it be nice, this thinking went, if we learned to buy a little less and save a little more. Maybe then we’d be happy.
We are about to find out – because hidden in economic data is a mild decline in the American obsession with spending money. People are spending somewhat less, even when unemployment isn’t an issue. Americans are paying down credit-card debt, the worst kind of debt, while saving somewhat more. As growth rebounds, we may awaken to a new economic reality in which consumer demand mildly slackens on a long-term basis. This is exactly what social philosophers said would be good for us!
–According to Federal Reserve figures, household debt in the United States dropped slightly in 2009, the first drop since 1945. Some of the decline was keyed to housing foreclosure (which can eliminate mortgage debt), but even taking this into account, household debt went down. Credit is tight – but maybe, as well, Americans are beginning to learn to resist that urge to buy like crazy right now.
–The Bureau of Economic Analysis reports that personal saving as a percent of disposable income hit 3.6 percent in April, the highest such figure since 1998. In April, Americans saved $399 billion – money they might have spent, but didn’t. This seems significant because it is the employed who have extra income they decided not to spend.
–The mean amount a household owes in credit-card debt is now $3,900, down from $4,900 a year ago, according to this Associated Press-GfK Poll. This suggests that Americans are becoming cautious about credit-card use – which is not only smart personal finances, but likely to reduce money stress.
–Since 2007, retail sales are down about 6 percent; household income is down about 1.6 percent in the same period, so retail sales have fallen more than income. Prior to the decline that began in 2008, retail sales had risen 27 consecutive years.
–Last November, the typical Black Friday shopper spent $330, versus $390 (in today’s dollars) in the peak year of 2006.
–Electricity consumption declined from 2007 to 2009, though has risen slightly this year. Unlike gasoline demand, which trends up or down roughly in sync with larger economic movements, electricity demand had been rising steadily since World War II ended. The recent decline in electric power demand began before the 2008 financial-sector meltdown. Now the Energy Information Administration projects – see the table on page 5 — that per-capita U.S. energy use will remain in shallow decline for at least the next two decades.
Obviously these leading indicators can’t be driven solely by an outbreak of awareness of the virtues of not over-spending. Conservation technology is a big factor in electricity demand, for example, while last fall’s Black Friday occurred at a time when consumer confidence was low. Confidence is back, so perhaps Black Friday 2010 will be crazy. But for a long time – basically, for the lifetimes of readers of Reuters.com – trend lines involving materialism, spending and personal debt have almost always been up. Now that’s moderating.
Shouldn’t this mean a less-frantic lifestyle awaits us – more walks in the park or picnics, fewer day-spa trips and fancy meals? Social commentators (including me, in my 2003 book The Progress Paradox) have been saying Americans would become happier if they spent somewhat less and saved a little more. That appears to be happening. Is it a blip, or the beginning of a long-term transition?
Now consider two other forecasts.
The Organisation for Economic Cooperation and Development, with a reputation for being guarded, just said the global recession has concluded and that growth is back. But not rip-roaring growth. Check the numbers the OECD projects. They represent “slow growth,” exactly what commentators of the go-go 1990s said would cure many ills of society. When strip malls and townhouse blocks were rising so fast it made your head swim, slow growth sounded awfully good. If what you favored was slow growth, looks like now we have it. Perhaps without ever meaning to, the United States and the European Union have embraced a slow-growth future.
Meanwhile Christina Romer, President Barack Obama’s chief economic advisor, believes 9.9 percent unemployment does not result from any structural change in the economy, rather, from soft demand. In that case, assuming Americans voluntarily are moderating demand and saving more, employment may recover much more slowly than the economy overall.
A guiding assumption among economists and policy-makers has been that replacing factory employment (which is declining owing to rising productivity, not offshoring – factory employment is down in China, too) is the leading economic challenge to be faced. If consumer demand has entered long-term mild decline, entry-level employment may become the first problem. Fewer big-box stores will be good for our souls, bad for the job rolls. Our psyches may be better off with less spending, but retail employment and job creation may be slack for a long time.
POINT THAT DIDN’T QUITE MAKE THE MAIN COLUMN:
Total U.S. household debt in 2009 was $13.5 trillion – almost exactly the same number as U.S. federal debt in 2009. This must mean something. If only I knew what!