"The old consumer economy is gone, and it's not coming back," writes Leonhardt.
My response is not quite. While the consumer bubble is showing signs of fundamental strain, it has yet to break. Personal consumption expenditures as a percentage of GDP rose to 71.1%. This is a historical high.
The central planners know that any reduction in personal consumption, which is only a matter of time during the Great Recession, will have serious economic consequences. Count the number of policies directed towards protecting consumption since 2001. The central planners are trying desperately trying to kick the can down the road, because they understand the consequences of not doing so.
Personal Consumption Expenditures (PCE) As A %GDP and Personal Consumption Expenditures As A %GDP Average from 1947
Except from Richard Russell's Dow Theory Letters
"The auto industry is on pace to sell 28% fewer new vehicles this year than it did 10 years ago -- and ten 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"
Wait a moment. Doesn't this sound a lot like A. Gary Shilling? We're just "spent up." Too damn much debt and not enough savings. "The old consumer economy is gone, and it's not coming back," writes Leonhardt. In a series of graphs, Leonhardt shows the drop in spending on discretionary services. During previous recessions, discretionary services dropped between 0.9% and 3.4%. But from 2007 to the present, discretionary services (so far) have plunged 6.9%.
Writes Leonhardt, "Sure, house and car sales will eventually surpass their old highs, as the economy slowly recovers and population continues expanding. But consumer spending will not soon return to the growth rates of the 1980s and '90s. They depended on income people didn't have."
