It’s the day after Thanksgiving at Aventura Mall, north of Miami, and David Weinberg is worrying about the economy. “People are underestimating the downturn in the housing market in Florida and are spending based on home equity,” says the accountant from nearby Pembroke Pines, Fla. “We have not seen the worst of it yet.” In light of these looming troubles, Weinberg, at the mall with his wife and two young kids, says he’d like to rein in spending this holiday season. “But,” he adds, “I’m not always in control.”
Meet the American consumer of late 2007. Sure, he’s worried. Apart from a brief blip after Hurricane Katrina in 2005, the University of Michigan’s much watched Index of Consumer Sentiment hasn’t been this low since 1992. But buying stuff is what we Americans do. The last outright decline in consumer spending came in 1991, and that was shallow and short-lived. Most indications are that this year’s Christmas shopping season will be, if not exactly a blowout, better than the last one.
Short-term retail optimism brings no cheer, though, to the economy’s wise men, who talk mainly of an imminent downturn. “The odds now favor a U.S. recession,” writes former Treasury Secretary Larry Summers in a newspaper column. “I’d put the number at about a 75% chance,” says investing guru Jack Bogle on TV. “We are becoming more certain that the recession is either here or no more than two quarters away,” warns Merrill Lynch economist David Rosenberg in a note to clients.
Talk is cheap, and economists and laymen alike have a strikingly poor record of predicting recessions. But there are good reasons to be concerned that the economy is weakening. They involve struggling banks, the collapsing housing market, the volatile stock market, oil prices, the weak dollar and lots of nervous investors in far-off lands. All of which relate back to the financial condition of the people swarming the nation’s malls. Read more.