The new normal economy
The economy is way short of full employment, so naturally, consumer spending is down. Sooner or later employment, I think, will return to normal levels. Consumer spending will return to normal too--but don't look to the first half of this decade as "normal." Normal is something very different.
Jeannine Aversa, AP economics writer, has a piece out that looks at what the early signs of economic recovery will be.
The gist of her analysis is that people are still spending on discretionary items, but spending conservatively. They're still eating out, but they're not getting as many appetizers, bottles of wine, or deserts. They're still going to the spa, but they're going to local spas rather than taking a vacation at a resort spa.
It's a good analysis--there are levels of discretionary spending, and she's got a useful list of those second and third level discretionary items that have taken the biggest hit--and whose recovery will be an early sign of a more general recovery.
But I think she's missed the really big story:
What used to be an afterthought, from ordering wine with dinner to jetting off on a resort vacation, still feels like a splurge. No one knows when consumers will feel financially secure enough to return to old spending patterns.
Because, see, the "old spending patterns" were never sustainable. They were based on an economy of cash-out refinancing in a world where the value of people's houses only went up. If the value of your house went up by $70,000 every year, you could just refinance annually, take out the $70,000, and live off the rising value of your house. In that world, owning a house was an alternative to having a job. But that was always an illusion. That pattern is not going to return. And, without it, I don't think the "old spending patterns" of the housing-boom economy are going to return either.
In the new normal--in any real normal--something like "jetting off on a resort vacation" will always feel like a splurge, except to the truly wealthy. It is only in a fantasy economy--where we're all truly wealthy--that it doesn't.
It's just that we've had two fantasy economies in a row (the dotcom bubble and the housing bubble), so people are understandably unfamiliar with what normal looks like.
Here's a clue: In a normal economy, people have to live on less than what they earn and save up for what they want to buy. I look around and observe that we're starting to see those things happening again. That makes me think that what we've got now is starting to look a lot like a normal economy.