Shiller

Let’s take a step back and look at some of the big trends that are driving the consumer economy.

First, the change in private-sector employment. While the month-to-month employment figures have been moderating, we are still looking at the loss of 7 million jobs in the last two years. That makes people feel insecure and uncertain.

Second, while the value of home prices are stabilizing, the number of mortgage defaults remain high, sustaining downward pressure on the housing market.

In response to the changing landscape, consumers cut consumption. They’ve kept their spending level low, creating what many call The New Normal.

A good indicator of the change in behavior is the performance of restaurants. Foot traffic and sales decline in August, after experiencing a bounce-back in the early summer. Overall, the restaurant industry has experienced 18 months of sustained contraction, a clear shift in consumer behavior.

At the same time consumers have cut consumption, they have increased their savings rate. We remain far below the savings rate of the 1980′s, when our economy shifted from being a manufacturing/savings economy to being a services/borrowing economy.

The resetting of the consumer economy creates a drag on a number of components of Gross Domestic Product. Inventories were down significantly in the second quarter, as was housing.

Only two sectors showed growth: imports and government. Effectively, deficit spending is offsetting the decline of the consumer economy: a sensible policy during a long economic downturn.

There you have it: a story in five pictures of a stabilizing and struggling economy.

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