The nation’s economists are getting concerned again that the slow recovery may be something more serious as expectations that consumer spending would help propel the economy upward has now been largely discounted.  At least for now.

GDP

Historically, consumer spending has accounting for approximately 70% of Gross Domestic Product (GDP) as measured by the U.S. Department of Commerce’s Bureau of Economic Analysis (BEA).  This is what has economists losing sleep, as consumers are struggling to take control of their mortgage debt, credit card balances, and auto loans – they’re not making much progress at “deleveraging”. Deleveraging is a term that generally means paying down debt from personal savings or from increased personal income.

Problem with Deleveraging

Here’s the problem with “deleveraging” using personal savings or increased personal income – since the 2008 recession, consumer’s savings and income haven’t grown enough to have a significant positive impact on paying down debt.  Call it what you will – deleveraging or paying down debt – consumers have not has much success at either.  The Bureau of Labor Statistics (BLS) reported that for 2010 consumer spending was down 2%, and this was following a 2.8% decline in 2009.

A report from the Blackrock Investment Institute measured the relationship between consumer personal incomes and their respective household’s debt and found that their debt level is still one-and-a-half times their personal income.  The exact figure was 154% – a scary number to look at – made even more daunting when you recall that before the 2008 recession and follow-on effects that rippled through the economy – the 154% is actually 7.5% lower than pre-recession levels in 2008.

Why Can’t We “Deleverage”?

Many economists blame the “job-less” recovery for low or no income growth, while others are convinced that the steady and often dramatic increases in gas prices and healthcare premiums have acted to siphon-off any personal savings or meager increases in wages or personal incomes.  All of this comes as no news to folks who are working harder than ever to keep their jobs, their homes, food on the table and maintain healthcare coverage for themselves and their families.

A few experts are even talking about the similarities between the U.S. economy today and the economy that Japan endured in the 1990’s following their own economic crisis.  Japan suffered through a 15 year slow-down that was accompanied by massive unemployment, no wage growth, increased prices and a deleveraging process where employers and employees (consumers) walked on eggshells trying to avert catastrophe.

Federal Role?

Shouldn’t the Federal Government Do Something?  Anything?
The recession of 2008 brought about the necessity for stimulus packages for many areas of the economy.  The bank bailouts, the auto company bailouts, the public works projects to help states improve infrastructure and get people working again.  But, years later it’s sometimes difficult to find how all of these efforts served to help consumers feel more confident – or at least confident enough to pay down debt or even to take on more debt through consumer spending that would uplift the economy. While hugely unpopular with legislators in an upcoming election year – the prospect of added stimulus for consumers may become necessary, sooner rather than later.

Real estate observers feel that most people remain cautious about the housing market because they fear another housing bubble and don’t want to get caught again with their primary asset losing another 30% to 40% of its value.  In fact some economist still foresee a need for some home prices to drop another 20% to clear the inventory of over-valued homes that glut the market and wreak havoc on banks writing new loans that may be based upon inaccurate appraisals in a seemingly downward-trending market.

Learn From The Past

The hope in late-2008 and early-2009 that consumers alone would begin to save a little and spend a little and that this would be sufficient to not only sustain a recovery, but to elevate growth and create demand from businesses for more products, services and yes, JOBS – is now clearly in doubt.  The next several quarters will be critical to getting the U.S. consumer more comfortable with opening their purses and wallets and spending again, and again in order to break out of this post-recession slow-down.