William J. Holstein

Consumer Spending--Waiting for Godot
Feb. 24--Economists and investors are surprised by the latest consumer confidence numbers, which have plunged. Newspapers today express concern that American consumers used to be world-class champions of buying, but they are damaged and they are not recovering quickly.

I'm not surprised at all by this. It's the new reality, as I have been arguing consistently for months now. The days in which consumer spending accounted for 67 percent of the total American economy are gone forever. It was an artificial bubble, built on access to cheap credit. Now that the banks are not lending, and credit card companies are playing much tougher games, Americans cannot afford to spend like they once did. It is a permanent, structural change in the American economy, and hence the world's.

The other economic indicators also are tough--bank lending is at a 60-year low, the housing market remains tough, etc. When will we wake up to the fact that we are not going to quickly bounce back to the good old days of rampant consumption? It is not going to be a "V-shaped recovery." We need to face the fact that we are starting on a long slog. The sooner we adjust our expectations to reality, the better off the American economy will be.