Meet the Walkers. They’re the latest embodiment of the culture of thrift said to be sweeping America. And their story, after it was reported a few days ago in the Washington Post, lit up the Web as another sign that things truly have changed. You see, the old, conspicuous Walkers used to travel to the Caribbean, shop at Nordstrom, and tell friends all about their consumer exploits. Now, with money tight, Seigrid Walker has found joy in flaunting her frugality. They stay in, eat pizza, and watch Madagascar “over and over again.” Forget about keeping up with the Joneses. It’s all about keeping up, or is it down, with the Walkers.
Since the recession began, thrift has been touted as the new black. It’s more than a matter of trendspotting. Consumers make up 70 per cent of the U.S. economy. Any recovery is wholly reliant on them getting back into the malls. So when analysts tell us Americans are simply unwilling and unable to spend any more, the implications are dire. But there’s a huge gulf between unwilling and unable, and a recovery hinges on which one is truly the case.
There’s no shortage of evidence to suggest consumers’ hands are tied. Nearly six million jobs have been lost since the recession began. American households are also struggling under a mountain of debt. Even though consumers have chipped away at their liabilities, they still owe about 1.3 times their disposable income. In short, unemployment is rising, incomes have flatlined and banks have tightened their lending. No wonder consumers feel tapped.
The bigger question is: will they refuse to spend once things improve? Even a cursory glance at the history books suggests that won’t be the case. Just about every serious downturn has come with predictions about the end of consumerism. And each time a rebound has eventually come. Meanwhile, new data from NPD Group, a market research firm, shows consumers are already getting the itch to spend again. The firm’s retail response indicator, which measures consumer spending intentions, has climbed steadily since it bottomed out in March. In May it surpassed the level it was at last October, before the crisis hit full force. “We are seeing consumers move toward replacement and replenishment purchasing,” the company’s chief analyst Marshal Cohen said. “These are the kinds of purchases that would indicate we have taken the first step toward recovery.”
There’s no question it will take a very long time for consumers to regain their footing. But at the end of the day, there are only so many frozen pizzas and Madagascar viewings they can take.
GRAPH OF THE WEEK: Deserted Roads
For 15 years America’s love affair with cars and trucks has been in high gear, with sales averaging 17 million a year. As this graph shows, that’s come to a screeching halt in the past two years. If sales get stuck at less than 10 million for long, it will stall any hope of recovery at GM and Chrysler.
THE GOOD NEWS
New home starts in Canada rose by 9.2 per cent in May, which economists took as a sign the decline in home construction has hit bottom. If so, housing could become less of a drag on the job market and the economy. Most of the gains came from Ontario’s condo market, while formerly red-hot areas in Western Canada were stagnant. The only area to see a slowdown in home starts was B.C., which was down five per cent. But after steep declines in the past few months, even that’s considered a good sign.
Slowly, but surely
Americans have lightened their debt loads, yet again. The U.S. Federal Reserve says consumer credit fell 7.4 per cent in April, or US$15.7 billion. If this pace keeps up for the rest of the year, consumer debt will have declined by US$2.52 trillion.
A globe on the mend
The OECD’s index of leading indicators suggests the pace of decline in the world’s biggest economies is slowing. The index rose in April to 93.2 from 92.7 the month before. The organization also said the recession may have reached its low point in Canada, France, the U.S. and Britain.
It turns out Washington doesn’t want to nationalize the banks after all. The Treasury Department said it would allow 10 banks to repay bailout money they received under the Troubled Asset Relief Program. It’s expected as much as US$50 billion will initially be handed back. Just another US$650 billion to go.
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