On June 15, 2009, I posted an article entitled “The Paradox of Thrift.” In brief, I talked about the economic concept developed by Lord Keynes in the 1930’s. The idea is that in a downturn when people get worried about the future, they tend to consume less and save more. So, recovery can be slow as consumer demand lags due to largely to consumer fear. In the world of 2010, it is even more serious with a U.S economy that is now 70% consumer driven as compared to the 1930’s when the industrial base was a larger share of the economy that that of consumer activity.
When I posted the report on the Paradox of Thrift some 14 months ago, the U.S. savings rate was at 4.7% (it had been zero a year earlier!) and the official unemployment rate was 8.9%. Last Tuesday, new figures were released and the savings rate was at 6.4% which is the highest level in decades. People who have jobs are still uneasy and are saving aggressively. Back to school sales to date are 17% below last year’s levels! And, government unemployment levels have crept up to 9.5% from 14 months ago.
Now, over the years I have learned to respect the difficulty of working with a mass of information. And, looking at only two data points—the savings rate and the unemployment rate do not make a definitive economic analysis.
But my innate optimism was shaken and shaken hard in recent days when I considered two more facts. Our growth rate appears to be dipping back to zero. I will let the professional economists and pundits waste time on whether we are heading into a “double dip” recession or not. The other datum is chilling and not many people want to talk about it. Most economists agree that due to demographics and new graduates entering the work force we will need 3.3% growth rate in Gross National Product (GNP) to lower current unemployment levels. When the economy is sailing along as in the past at 4% growth and a zero savings rate in our 70% consumer driven economy, job creation was almost automatic. But now, with anemic growth at best and a very high savings rate, vibrant job growth is going to be a long time in coming.
So, if you are a broadcaster, cable executive or advertising manager, be realistic when the boss or headquarters asks for double digit revenue increases for 2011. There are some pockets of prosperity in a country with a few hundred media markets but aggregate consumer demand across the US will likely be tame for a while. Your sales teams may go at it tooth and nail but the increased advertising dollars will be hard to find in many markets.
Who is to blame? Many people point the finger at George W. Bush who lowered taxes for the affluent, Wall Street’s greed or President Obama whom they label as a socialist. All three have not helped much but the American consumer is largely responsible for what has happened. We had it too good for too long. For two generations, we saved less and less and borrowed more and more. If it took 60 years to get us into this mess, we are not going to be out of the woods in another six months. Recovery is going to be slow in my opinion and, for many, painful.
Am I afraid? No way. Concerned? You bet. And you should be too.
If you would like to contact Don Cole directly, you may reach him at email@example.com