The Party’s Over
May 1st, 2008 at 6:36 am by Susie
But it’s not all bad. Soon swap meets will dominate the economy!
With the overall economy growing at a mere 0.6 percent annual rate for the second quarter in a row, consumer spending advanced by only 1 percent, the government estimated. That was down sharply from the 2.9 percent gain for all of 2007 and the 3.1 percent gain for 2006. It was the weakest showing since 2001, the last time the economy was ensnared in a recession.
Even more ominously, Americans cut back on a wide variety of discretionary purchases, conserving their cash for necessary spending.
In the dip, economists saw evidence that the basic laws of arithmetic are now impinging on millions of households.
As real estate prices plunge, so does the ability of homeowners to borrow against the value of their homes, crimping a major artery of spending. As banks grow tighter with their dollars in a period of uncertainty, families are running up against credit limits, forcing many to live within their incomes. And as companies lay off employees and cut working hours, paychecks are effectively shrinking.
“This is not a fluke or a technical quirk,” said John E. Silvia, chief economist at Wachovia in Charlotte, N.C. “It’s fundamental. Real disposable income has been squeezed.”
Consumer spending fell for a broad range of goods and services, including cars, auto parts, furniture, food and recreation, reflecting a growing inclination toward thrift. Areas in which spending rose were predominantly those not considered optional purchases, including health care, housing and utilities.
The fact that the economy expanded at all, even by a tiny margin, sowed hopes that a recession might yet be averted. But most economists found in the details of the preliminary report signs of broadening economic distress at home even as businesses expanded production to meet growing demand from abroad.
“The fact that the economy expanded at all, even by a tiny margin…” only means that we’re paying more for the stuff we absolutely have to, like food and gas– which are conveniently left out of the so-called “core inflation” calculation.
Another interesting “symptom” - the “Trading Times,” a regional shopper, sells out in two - three days, as opposed to the five it used to take.
Wasn’t it Henry Ford who said to pay your employees enough so they can buy what they’re making?