Fisher Investments Editorial Staff
US Economy

The Report of the Consumer’s Death is an Exaggeration

By, 08/17/2009

Story Highlights:

  • Concerns about the state of US consumers have some doubting the economy and stock market can recover.
  • Today's report on consumer confidence added fuel to those concerns.
  • But consumers are more resilient than most people realize and have actually been a stabilizing force during this economic downturn.
  • As the economy recovers, consumers will too.


After hearing of his own demise, Mark Twain quipped, "The report of my death is an exaggeration." Recently, eulogies have been penned for US consumers, but these claims too have been blown far out of proportion.

A report today revealed worse than expected consumer confidence data, and the S&P 500 closed down -0.85% for the day. Global stocks followed suit, dropping –0.66%. While disappointing consumer confidence data may have contributed to today's losses, don't look to consumer confidence to tell you where the stock market is headed. As we've said numerous times, consumer confidence is backward-looking and reflects what the stock market and economy have done in the past, not what they will do. But since private consumption accounts for the lion's share of US GDP, many still fear hamstrung consumers will put the brakes on an economic and stock market recovery.

Here in the US, private consumption accounts for over two-thirds of economic output. With consumer confidence low, unemployment high, savings increasing, credit conditions tightening, and the economy weak, it's difficult for many to believe consumers will bounce back, but they're much more resilient than most people realize. From the peak of real economic output in Q2 2008 through last quarter—the likely trough for this recession in terms of GDP contraction—the US economy shrank 3.9%. The private consumption component fell a much more modest 1.9% over that period. That's slightly more than from peak to trough during the 1973-1975 recession (-1.5%) and less than during the 1980 recession (-2.4%).

Consumers drive America's economy, no doubt. But their habits are less erratic than many think. Government spending, net exports, business spending, and residential construction all contribute to economic output—and these are often much more variable than consumer spending. Cumulatively, they fell much more than private consumption during this downturn, so resilient consumers now account for a greater portion of GDP than they did prior to last year's crisis (70.6% of nominal GDP now vs. 70.3% in Q2 2008). You wouldn't know this from commonly cited consumption metrics such as retail and auto sales, which have been slumping. But consumers spend a lot on non-discretionary items, and those outlays aren't nearly as economically sensitive. So while people might put off buying a car or a tennis bracelet for better times, they continue to spend near record amounts on things like health care and housing.

And consumption doesn't only happen here in the US. Burgeoning middle classes in developing countries like China are a new source of consumption. Fast-growing emerging markets are now areas of significant revenue growth for many US companies.

Contrary to what you may have read, consumers have actually been a stabilizing force for the economy through this recession. Economic growth is expected to resume again this quarter and at a faster clip than most believed just a few months ago. As the economy recovers, expect consumers to also. Reports on the consumer's demise are indeed exaggerated.


*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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