Black Friday 2011: Consumers aren't lacking in confidence. They lack cash.
Black Friday 2011 deals are here but economists say consumers are hesitant. The problem isn't psychological; it's financial. Seventy percent of the economy depends on consumer spending, but 80 percent of families are experiencing declining wages. Raising the minimum wage would help.
Yet again, “Black Friday” is upon us, and those who monitor the pulse of American consumer spending note that we consumers seem hesitant, even two years into the economic recovery. According to their diagnosis, we continue to suffer a collective timidity; a “crisis of confidence” that threatens to become a self-fulfilling prophecy. Gutless consumers are the problem.Skip to next paragraph
We fear European debt, they say, or the United States deficit. It’s the housing crisis, and household “deleveraging,” which is economist-speak for paying off debt. Some diagnose underlying trepidation about the failure of the congressional Super Committee.
Economists seem to relish coming up with complicated analyses for the problem, but the explanation is actually much simpler. Yes, much of economics is psychology, but in this case, many of us who are not out there spending suffer from a simple ability to do math, realizing that at our current wages, our pockets are empty.
During the Great Recession, median household income dropped by 3.2 percent, but during the “recovery” it has decreased by 6.7 percent. The recession may technically be over, but Americans’ personal financial crises remain all too real. While there have been some small positive month-to-month improvements in disposable income through 2011, overall levels have declined to those of early 2010.
Federal data reveal that between October of 2010 and October of 2011, real average weekly earnings fell by almost 2 percent, even as workers collectively put in more hours. The problem is that 70 percent of the economy depends on consumer spending, but 80 percent of families are experiencing declining wages. We aren’t suffering from some mass hysteria or lack of confidence; we’re broke.
Per person demand for domestically produced goods and services remains 7 percent lower than before the recession, 8.5 percent lower than what we’d see under normal growth. Consumer spending data from the Bureau of Labor Statistics reveals that lower income families are pinching their pennies.
Since 2006 families with incomes of about $10,000 have cut their spending on fresh food, clothing, household goods, and transportation dramatically. Families bringing in closer to $30,000 have cut back too, and not just on luxuries: 25 percent less spent on beef, 23 percent less on meals away from home, 48 percent less on sheets and towels for their homes, and their young children are going to school with as much as 33 percent fewer new clothes.
Many of these families just don’t have the financial stability to handle holiday shopping this year.