The pullback in US consumer spending, which accelerated ahead of the holiday season, appears likely to be sharper in 2009 than any such retrenchment since World War II.
That sobering forecast from economists goes a long way toward explaining why they generally support the idea of a large government stimulus effort, as President-elect Obama urged Thursday.
As large as it is, the stimulus won't fill the hole created by consumers. The pullback from shopping malls won't last forever, but for now, it's a reaction to tough times that is making these times even harder.
Signs of consumer pressure abound:
•Faced with a February switch over in the format for television broadcasts, an unexpectedly large number of households are opting for low-cost converter boxes rather than buying new TV sets.
•People are putting off the biggest purchases, as car dealers can attest.
"Households are revising downward their assessment of their … income going forward, and revising upward their assessment of the likelihood of losing a job," says Steven Davis, an economist at the University of Chicago. "The environment has become much more uncertain."
The shops and boutiques of Boston offer a window on that uncertainty.
"I only make one check and I can hardly pay the bills," says Delories Dyer, a mother of two who supervises a cafeteria. Her husband is out of work.
"I never used to use coupons," she says. But with a family income now of about $450 per week, now she makes a point of it.
Many retirees are also struggling after big losses in the stock market.
And young workers are vulnerable to the weak job market.
Tina Drouin, a rock singer and songwriter, says her work hours at an ice cream shop are way down due to the recession. "I can't buy anything frivolous, just the necessities," she says.
Her take is that fear caused much of the dive in economic activity. "Everybody started freaking out and saying 'I can't spend any money,' and that's what causes the crisis," Ms. Drouin says.
She has a point.
It's not that the economy has no problems beyond a public mood shift. But when necessity or worry causes most consumers to save money at the same time, it causes a problem known among economists as the "paradox of thrift."
Consumers are acting rationally to safeguard their financial health in a recession, but their collective action may hurt everyone by shrinking the economy even more.
In a typical year, consumer spending goes up – rising on average by about 3 percent and representing about two-thirds of all economic activity in America. In records that go back to the 1930s, it's rare for consumer spending to post a calendar-year decline. With rising population and rising worker productivity, any such decline represents a serious setback.
In 1980, personal consumption declined by a fraction of a percentage point.
This year, many economists believe the drop will end up exceeding the sharp 0.8 percent decline seen in 1974, possibly approaching a level last seen in 1942, when spending fell by 2.3 percent.
Many of the forces buffeting consumers are more than psychological.
Homes, long the key source of household net worth, continue to fall in value in much of the country. Credit isn't as available. And the combination of the credit crunch and vanishing shoppers is causing businesses to cut back on employment.
Along with layoffs, many firms are cutting back on hours worked or on compensation. "Most of us are worried about being told … 'no pay raise, or maybe even a pay cut,' " says Ken Goldstein, an economist at the Conference Board, a research group in New York.
Normally a recession ends as consumer spending gathers new momentum.
To many economists it looks as if that process will take longer than usual. The loss of household wealth means that many families will be trying to pare down their debt, and rebuild savings, for some time to come.
That doesn't mean that the vaunted US consumer is permanently down and out. Many forecasters see personal spending heading up by about 2 percent in 2010 – below normal but a positive number. That hinges on the expectation that government stimulus and efforts to repair the nation's financial system are effective.
Derek Caissie, a Boston-area manager at an ink-cartridge store, says his pay hasn't been cut and his job seems secure for now. And he expects that, while it may take some time for consumers to repair their personal balance sheets, they will rebound.
"In five to 10 years people will be like they were a few years ago," he says. "They'll see that TV and say, 'I want that'."
Even now, the health of consumers varies widely.
"You've got an awful lot of people that have a very modest amount of debt, huge equity in a house, and pay their credit card balance in full every month," says Scott Lilly, an economic policy expert at the Center for American Progress in Washington.
"But people who are overextended are much more overextended than in the past."
Lloyd Williams, another Boston resident, just rushed to sell a building that he and his family had managed for years, because they needed to raise cash to cover credit card expenses.
It wasn't a move he had planned to make, but he's adapting to current times.
"You don't know if next month things are going to get better," he says.