Tuesday, August 18, 2009

Consumer Spending And The Pending Retracement

This graph from RBS shows consumer spending as a percentage of GDP.

We all know "the consumer is 70% of GDP" but the question is, "what will consumer spending end up being as a percent of GDP?" Does 1997's 67% seem crazy? Does anyone think of the 1980s as a period of frugality and restraint? Could the highest point in the 80s (1989) be the new normal at just under 66%? These are the headwinds we face economically, but retracing that profligacy as debt to income corrects doesn't seem like a bad thing to your interpid author.

It will be painful, but healthy.