It's the Consumer Bust, Stupid

From David Leonhardt, at New York Times, "How the Bursting of the Consumer Bubble Continues to Hold the Economy Back." (At Memeorandum.)

THERE is no shortage of explanations for the economy’s maddening inability to leave behind the Great Recession and start adding large numbers of jobs: The deficit is too big. The stimulus was flawed. China is overtaking us. Businesses are overregulated. Wall Street is underregulated.

But the real culprit — or at least the main one — has been hiding in plain sight. We are living through a tremendous bust. It isn’t simply a housing bust. It’s a fizzling of the great consumer bubble that was decades in the making.

The auto industry is on pace to sell 28 percent fewer new vehicles this year than it did 10 years ago — and 10 years ago was 2001, when the country was in recession. Sales of ovens and stoves are on pace to be at their lowest level since 1992. Home sales over the past year have fallen back to their lowest point since the crisis began. And big-ticket items are hardly the only problem.

The Federal Reserve Bank of New York recently published a jarring report on what it calls discretionary service spending, a category that excludes housing, food and health care and includes restaurant meals, entertainment, education and even insurance. Going back decades, such spending had never fallen more than 3 percent per capita in a recession. In this slump, it is down almost 7 percent, and still has not really begun to recover.

The past week brought more bad news. Retail sales in June were weaker than expected, and consumer confidence fell, causing economists to downgrade their estimates for economic growth yet again. It’s a familiar routine by now. Forecasters in Washington and on Wall Street keep saying the recovery’s problems are temporary — and then they redefine temporary.

If you’re looking for one overarching explanation for the still-terrible job market, it is this great consumer bust.

Well, I'd suggest that the housing crash underlies the consumer bust, and folks increasingly see this as caused by Democrat Party policies. See Glenn Reynolds, "REX MURPHY: 'If America falls, it will not be from external enemies...'."

And ICYMI: At Wall Street Journal, "A Home Is a Lousy Investment," and "The Housing Headache Felt All Over."