Here I go. I am about to walk into one of the biggest sucker's games in the whole world of economics: declaring that the U.S. consumer is tapped out, so desperately in hock and troubled about the future that he finally just can't spend like it's 1999 anymore. And to be clear, that is what I'm declaring. Unless I can talk myself out of it by the end of the column.I must be nuts. One of the most reliable ways to look like a business dope over the past several years has been to announce that the consumer spending party is finally over. Every year, usually in the fourth quarter, assorted boffins prove beyond doubt that U.S. consumers cannot possibly keep spending as they have been. Consumers then ignore those reports and keep right on spending anyway.
The question of consumer behavior is enormously important because more than 70% of U.S. economic activity is consumer spending. Most companies thus depend on our buying, which means that most of the valuation of the U.S. stock market depends on it also.
And because we buy so many imports - almost $2 trillion worth last year - plenty of foreign economies depend on us as well. So it's easy to see why everybody wonders what U.S. consumers will do next.
It's also easy to see why all kinds of analysts figured we simply had to stop spending big a long time ago. A year or two back you could observe that interest rates were rising as the Fed kept ratcheting up, cash-out mortgage refinancings were declining, the housing boom was looking like a bubble, real total pay was flat, credit card debt was ballooning, and the personal savings rate had gone negative for the first time since the Depression.
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