A lot has been written in recent months ab0ut how American consumer culture is changing. People are willingly or unwillingly weaning themselves off debt and embracing a Depression-style frugality. These writers imply that pretty soon we’ll be saving broken bits of soap to do our dishes by hand. Their main evidence is the sharp increase in the savings rate from less than 1.5 percent in the 4th quarter to 5.2 in the second quarter.
At this point, it’s hype. The psychology hasn’t changed. People may be running scared, but I don’t think they’ve changed their basic outlook on life. The Great Depression lasted a decade, followed by another 5 years of war in which people had to scrimp. This “new era” of enforced frugality has lasted, what, six months following 30 years of consumer borrowing and spending. People don’t change their basic outlook on life in six months. Look at what happened in the stock market. Financial pundits said many would never get back in the stock market. Well, guess what. Once it turned around, people jumped in again, despite the signs that this rally can’t last. People saw the decline as a buying opportunity.
As far as consumer spending. Check out this analysis from the Center for American Progress:If we dig deeper into the figures, however, we see that the drop in spending—the increase in the saving rate—appears to be largely a result of lower energy prices and less spending on cars, which are likely caused by fewer people having to drive themselves to work and less access to consumer credit.
In other words, people aren’t voluntarily saving any more than they were.
It’s possible this really is the start of a new era. This view holds that consumers will be forced to cut spending for years in order to pay down trillions in credit cards, houses, cars, etc. This is the so-called “Great Deleveraging.” But it would have to go on for years, decades even, and shape a new generation before it works its way into the national psyche.