A curious question came over the cable on CNBC this morning: “Are you spending like it’s 2007 again?”
The question reflects a hope that consumer spending will lead an economic recovery in the United States. And it lends itself to two main answers: “What?! Are you kidding?” and “Um, well, now that you mention it, maybe so.”
The suggestion of spending at 2007 levels is preposterous, of course, in households where the last four years have brought a new sense of fiscal sobriety along with a reduction in income from work. That is probably a little more than half of U.S. households. For those of us in this category, even though our income may someday return to 2007 levels, it will never be 2007 again.
In other households, income has kept up with inflation, or nearly so, and there hasn’t been such a scare as to change people’s attitudes about money and spending. But even here, the social context of spending has changed. Far from the prior peer pressure to borrow and spend beyond one’s means, there is now social pressure to master money and ditch the credit cards. And so, if people are spending like it’s 2007 again, they recognize this as a mistake that they would like to correct if they can manage it.
Of course, there are also households that have much higher incomes now than four years ago, mainly as people successfully made the transition from students to working professionals. It is to be expected that these households would be spending more than before; but all other households, in aggregate, are spending less.
Consumer spending edged up in January, but only because of higher fuel prices. With prices for oil, gasoline, natural gas, and electricity expected to increase over the next six months, and food prices increasing as a consequence, this will show up as an increase in consumer spending, but the increase will likely mask a decrease in spending on consumer goods other than food and energy.