David Leonhardt has some interesting numbers in his column in the Times today and makes the case that the talked-about $150 billion stimulus package won’t be nearly big enough to offset the likely decline in consumer spending.
At that rate, consumer spending would decline about 1 percent next year, which is worse than it sounds. It would be the first annual decline since 1980, as I mentioned above, and the biggest since 1942. Relative to the typical increases from recent years, it would represent $400 billion in lost consumer spending.
And get this: Spending in the last few months has actually been falling at an annual rate of 3 percent. So the seemingly pessimistic events I have sketched out here are based on the assumption that things are about to get better.
The next question is how much of that income people will spend. For decades — from the 1950s through the 1980s — Americans spent about 91 percent of their income, on average, and put away the rest. In the last few years, they have spent close to 99 percent and saved only about 1 percent.
It would have been nice to point out that the savings decline coincided with stagnating incomes, meaning the average American found it much harder to keep their standard of living stable and had to spend more their income to make it.Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at email@example.com. Follow him on Twitter at @ryanchittum.