Retailers across the United States will look at the current issue of BusinessWeek and cringe. Thanksgiving week is an inopportune time to learn that the mighty American consumer is finally faltering, as Michael Mandel writes in the magazine's cover story, "The Consumer Crunch." But the news isn't all bad.
Compared with the early 1980s, which was the last time consumers cut back, much more of what Americans buy is made abroad. Today, imports of consumer goods and autos run about $740 billion a year. That's fully one-third of consumer spending on goods outside of food and energy. As a result, most of the spending cutbacks won't cost Americans their factory jobs -- those factory jobs have mostly fled offshore anyway. Workshop China, in contrast, will get hurt.
Somehow, one imagines that neither the Chinese or Americans are likely to be consoled by this news. If Americans are finally cutting back, brought to their knees by the housing crisis, that alone is gloomy enough news. A 25-year spending spree, fueled by easy credit, could be coming to an end.
And what about that easy credit? Everyone knows the housing ATM is broadcasting a blinking "out-of-order" message. But isn't that what credit cards are for? Having successfully ensured that consumers will no longer be able to easily avoid paying their outstanding bills by declaring bankruptcy, one would imagine that the credit card companies must be licking their lips.
Or maybe their mouths have gone dry, too.
But executives from Capital One Financial, Bank of America, Discover Card, Washington Mutual, and others have told investors in recent conference calls that they are using more caution in extending credit. Chief Financial Officer Gary L. Perlin of Capital One, the nation's No. 5 card issuer, says he believes last year's historically low defaults by credit-card holders were partly driven by the real estate boom, particularly in previously hot housing markets such as Arizona, California, and Florida. Those benefits also have seemed to run out. As a result, says Perlin, Capital One is tightening lending standards and limiting credit lines.