Are our shopping days over?
Consumer cutbacks could be a sign of profound shift in how economy operates.
By Robert Gavin - Globe Staff / March 22, 2009
The era of the consumer-driven economy may be over.
After powering US and global growth for more than a generation, the American consumer has run out of gas. Burdened by debt and no longer able to borrow against rising home and stock values, US households have begun a long-term retreat in spending that will require the nation and the world to find different economic drivers, economists said.
In the short term at least, government will play an expanded role in the economy, increasing spending to fill the gap left by shrinking consumer demand, economists said. But over the long term, the nation will need to make fundamental changes by borrowing and consuming less, while saving, producing, and exporting more.
"We are going to need fewer malls and more factories," said Edward Leamer, director of the UCLA Anderson Forecast, an economic research group at the University of California at Los Angeles, "and it's going to be a long adjustment."
The transition for the US and global economies won't be painless either, economists said. Consumer spending, which accounted for as little as 62 percent of the nation's economic activity in the early 1980s, peaked in mid-2008 at about 71 percent, the highest share since the 1930s, according to the Commerce Department.
The pullback has pushed US automakers to the brink of bankruptcy, and major retailers such as electronics chain Circuit City into liquidation. The trade group International Council of Shopping Centers estimates 73,000 stores will close in the first half of 2009, after 148,000 stores shut their doors in all of 2008.
Economists say it's going to take at least a decade for this country and the world, particularly countries that export to US markets, to wean themselves from a quarter-century of ever-increasing spending by American consumers. In Japan, for example, the economy shrank at a 12.7 percent annual rate in the fourth quarter of last year, more than double the US economy's 6.2 percent rate of contraction. Germany's economy, also driven by exports, shrank at an 8.2 percent annual rate.
Mark Zandi, chief economist at Moody's Economy.com, said US consumer spending will continue to fall over the next several years to at least 65 percent of economic activity, the postwar average. Such a decline would be equivalent to a loss of nearly $1 trillion in economic activity.
"Instead of US consumers leading the way, they're going to be just holding their own," Zandi said. "The world is going to feel a lot different over the next 10 years than it did in the past 25."
Consumers in other nations, such as China, will have to pick up more of the spending load from US consumers in coming years, economists said.
Just as the United States borrowed, consumed, and imported too much, other nations saved, produced, and exported too much. Now, the global economy must find a better balance.
Consumer cutbacks could be a sign of profound shift in how economy operates.
By Robert Gavin - Globe Staff / March 22, 2009
The era of the consumer-driven economy may be over.
After powering US and global growth for more than a generation, the American consumer has run out of gas. Burdened by debt and no longer able to borrow against rising home and stock values, US households have begun a long-term retreat in spending that will require the nation and the world to find different economic drivers, economists said.
In the short term at least, government will play an expanded role in the economy, increasing spending to fill the gap left by shrinking consumer demand, economists said. But over the long term, the nation will need to make fundamental changes by borrowing and consuming less, while saving, producing, and exporting more.
"We are going to need fewer malls and more factories," said Edward Leamer, director of the UCLA Anderson Forecast, an economic research group at the University of California at Los Angeles, "and it's going to be a long adjustment."
The transition for the US and global economies won't be painless either, economists said. Consumer spending, which accounted for as little as 62 percent of the nation's economic activity in the early 1980s, peaked in mid-2008 at about 71 percent, the highest share since the 1930s, according to the Commerce Department.
The pullback has pushed US automakers to the brink of bankruptcy, and major retailers such as electronics chain Circuit City into liquidation. The trade group International Council of Shopping Centers estimates 73,000 stores will close in the first half of 2009, after 148,000 stores shut their doors in all of 2008.
Economists say it's going to take at least a decade for this country and the world, particularly countries that export to US markets, to wean themselves from a quarter-century of ever-increasing spending by American consumers. In Japan, for example, the economy shrank at a 12.7 percent annual rate in the fourth quarter of last year, more than double the US economy's 6.2 percent rate of contraction. Germany's economy, also driven by exports, shrank at an 8.2 percent annual rate.
Mark Zandi, chief economist at Moody's Economy.com, said US consumer spending will continue to fall over the next several years to at least 65 percent of economic activity, the postwar average. Such a decline would be equivalent to a loss of nearly $1 trillion in economic activity.
"Instead of US consumers leading the way, they're going to be just holding their own," Zandi said. "The world is going to feel a lot different over the next 10 years than it did in the past 25."
Consumers in other nations, such as China, will have to pick up more of the spending load from US consumers in coming years, economists said.
Just as the United States borrowed, consumed, and imported too much, other nations saved, produced, and exported too much. Now, the global economy must find a better balance.
