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Tell NPR, Consumers Are Spending

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Friday, 05 November 2010 05:39

Morning Edition told listeners that consumers are not spending because they are worried about their jobs. While they undoubtedly are worried about their jobs, they are spending nonetheless. The savings rate for the 3rd quarter was 5.3 percent, well below the post-war average, which is close to 8.0 percent. This level of consumption is a falloff from the peak housing bubble years when the saving rate fell to near zero, but it is still higher than we should expect when house prices fully adjust.

The point is important because it is ridiculous to expect increased consumer spending to lead a recovery. Households, especially those near retirement, must rebuild their wealth after seeing close to $6 trillion in housing wealth disappear. Those who bemoan the lack of consumption apparently still have not recognized the housing bubble and its impact on the economy.

Comments (4)Add Comment
get wit da propaganda
written by frankenduf, November 05, 2010 8:13
no, the real problem is that the rich are overtaxed- we need to cut taxes on the rich, who will likely spend it on a sixth car or third boat or somethin', rather than worry about the little people, who will probably try to ferret away some meager savings if they recieve a windfall (ok, my pathetic stab at istatso's schtick)
Ridiculous?
written by Paul, November 05, 2010 11:00
PCE (chained 2005 $)has increased steadily for the past 6 months http://www.bea.gov/newsrelease...elease.htm and is expected to be the primary driver of economic growth going forward since inventory reduction is completed and government stimulus spending increases are finished.

Was it ridiculous when Cash-4-Clunkers revived the auto industry?
The Economic Rent Is Too Damn High
written by izzatzo, November 05, 2010 12:13
Any economist knows why consumers are not spending as proven in the recent election. The economic rent is too damn high:

da rent, it's da rent
it's too damn high

loaded in da price
like an economic gun

extracted by the class
of gimmee gimmee sum

if not for our trickle
you'd be without

home and health
and checking account

fork it over muh sucka
it's cash and carry

pay to rent collector
dirty rotten harry
Of course consumers are spending!
written by John Smith, November 05, 2010 1:21
Consumers are spending because if they didn't they'd all be dead. The problems are that many of them are terrified of losing their job and many are buried unders mountains of debt. Since neither of these problems look like having any sort of cure in the near future, I would expect spending to be weak for a long time to come.

As for me, I'm saving up in preparation for the next financial crisis, which I believe will be with us fairly soon. It's a real pity that none of the causes of the recent crisis were actually addressed in any meaningful way.


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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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