American consumers can't save the world economy
Sometimes Treasury Secretary Timothy Geithner seems like Dudley Do-Right, the earnest yet socially awkward cartoon Mountie forever rescuing damsels in distress. Bu these days, as far as the American consumer is concerned, Geithner is no position to promise much help to anyone.
According to Reuters, Geithner will tell members of the G7 later today that "they can no longer rely on a free-spending U.S. consumer to fuel global expansion." Though there are some signs of improvement, such as unexpectedly strong housing sales last month, consumers continue to keep a tight grip on their wallets.
Their fear is understandable. Many economists are predicting unemployment to top 10 percent. It already has hit double-digits in places hard hit by the recession such as Michigan and California. Economists like Scott Hoyt, senior director of consumer economics for Moody's Economy.com, don't see much improvement for consumers until next year.
"Certainly in the near term its hard to see any kind of rebound in spending," Hoyt said in an interview with the DailyFinance. "Consumers are spending very conservatively and are trading down. "
Indeed, that point was underscored by the recent strong quarterly results at McDonald's Corp. (MCD), which earlier this week reported better-than-expected quarterly results and gave bullilsh guidance. Wal-Mart Stores Inc. (WMT) Chief Executive Mike Duke, whose firm also benefits from these trends, also recently that "there is still a lot of stress" in the economy.
When adjusted for inflation, consumer spending is expected to be virtually unchanged from the fourth quarter of 2008 to the fourth quarter of 2009. Next year, spending is predicted to increase 1.7 percent, a small change but a significant one, according to Hoyt.
"It will be a whole lot better than 2008 and 2009," he said.
Auto sales, already at record-low, will continue to "bounce along the bottom" while the housing market is showing signs of leveling off, Hoyt said.
"Consumers are still spending very conservatively," he said. "Consumer spending -- it is not falling as rapidly as it did before."