It's a stat we hear time and again: Consumer spending accounts for more than two-thirds of the U.S. economy. It was the reason President Bush famously (or infamously) urged Americans shortly after the Sept. 11, 2001, terrorist attacks to keep shopping and "get down to Disney World in Florida."
Take that, Osama!
"Our whole economy is designed to convince people that they want more," said David Colander, an economics professor at Middlebury College in Vermont. "Nobody is asking the big question: How much of a consumer society do we really want to be?"
Since the end of World War II, consumer spending has consistently represented more than 60% of U.S. gross domestic product, according to the Commerce Department. The percentage reached 70% in 2002 and is now almost 71%.
U.S. retail sales fell in September for the third straight month -- the first time this has happened since the government started tracking such data in 1992. The holiday shopping season is expected to be the worst in years. But some forecasters are predicting that spending will pick up by the middle of next year as consumers shake off the recession blues.
Colander said Americans' buy-buy-buy mentality wouldn't be troubling if it were accompanied by a higher savings rate and lower borrowing. But that's not the case.
We set aside precious little -- the savings rate is now almost 3% after sticking close to 1% for the last three years -- and we're carrying nearly $2.6 trillion in nonmortgage consumer debt.
Meanwhile, much of what we buy comes from other countries, while those nations tend not to buy as much of our stuff. The U.S. trade deficit topped $700 billion last year.
This means the U.S. economy relies more heavily on domestic consumption than do export-oriented economies. So when American consumers tighten their belts, the home front gets slammed.
In Europe, consumer spending accounts for about 60% of economic activity, according to the United Nations. In Japan, it's closer to 55%. And in mega-exporter China, it's around 35%.
A greater proportion of economic activity in those parts of the world comes from investment in factories and other big-ticket splurges, as well as government expenditures. That doesn't make these economies fireproof. But it can give them an increased measure of flexibility when times are tough, at least for the short haul. Longer term, their reliance on U.S. consumers' love of shopping makes them vulnerable to our spending reductions.
