Tired of being cajoled into buying?
Maxed out on bargains and easy credit?
No wonder.
Consumers kept the economy growing despite rising unemployment and the stock market’s long swoon.
Many of us have felt relatively richer, what with real incomes rising and interest rates going ever lower.
We cashed in our tax rebate checks and spruced up our homes. We refinanced our mortgages–sometimes twice in a single year–and rolled the savings into our spending plans.
When automakers handed out free money, we swarmed onto car lots to buy new wheels, sometimes even before we’d finished making payments on the old ones.
We made history when we kept spending even after the recession started sometime in late 2000 or early 2001–the first time in 50 years of business ups and downs that we continued to spend more every quarter while the economy was losing steam.
When the recovery stalled after last year’s terror attacks, we stepped up again to play our pivotal role in a post-Sept. 11 economy.
Granted, we no longer hop onto planes as often for pleasure jaunts. But we splurged on autos, homes and appliances as if there were no tomorrow.
That doesn’t surprise some theorists who suggest it’s precisely when people fear there may be no tomorrow that they’re inclined to spend more. Or at the very least, less likely to be diligent about saving for retirement and their grandchildren.
Sound crazy?
Bruce Russett, Dean Acheson professor of political science at Yale University, doesn’t think so.
He’s studied U.S. savings rates during the Cold War, including the Cuban missile crisis 40 years ago this month, when the world came perilously close to nuclear war. And he surveyed consumers as recently as 1990, when the U.S. was getting ready to go to war in the Persian Gulf.
His research suggests that when world tensions flare and people fear the worst, savings rates fall–as they did after Sept. 11.
What about now, when another war with Iraq looms?
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“I’d not be at all surprised if savings rates went down again,” Russett says.
The big worry, of course, is whether we’ll keep spending.
Many are maxed out. Household debt is near its highest level in two decades. Interest rates can’t go much lower, and home prices are climbing out of reach of many first-time buyers.
Retailers posted weak sales in September when the sizzle went out of car sales. Automakers jumped in with a new round of incentives, but their no-interest loans aren’t free.
Incentives average more than $3,600 per auto–nearly triple the sweeteners carmakers offered a decade ago. And that extra cash comes out of profits–a fact not lost on auto industry investors.
Meanwhile, consumer sentiment sank to a 9-year low this month due to worries about war and the stock market, according to a preliminary reading of the University of Michigan’s closely-watched index.
Threat of war and another recession?
Hold on.
Leading economists agree there’s slim chance of the latter. Northwestern University’s Robert Gordon, a member of the National Bureau of Economic Research–the official arbiter of recessions–is adamant.
“A double-dip recession is not in the realm of possibility,” he says flatly.
Gordon advises that it’s wrong to focus so intently on month-to-month changes in consumer spending–a nervous tic we seem to have developed while waiting for the stock market to recover.
Carmakers’ incentives add a new wild card that makes monthly data more volatile.
Meanwhile, business investment–key to any turnaround–finally is on the rise. It picked up in the second quarter for the first time in two years.
The consensus among forecasters is that the economy grew in the third quarter by an annualized 3.5 percent to 4 percent.
Even if consumers no longer feel like splurging, we’re on track for a recovery.
It looks as if we’ve done our job.
Now it’s time to worry less.
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