It's not shocking news that GDP contracted last quarter, but now, at least, it's official. More worrying is why: Consumer spending contracted sharply. For some time, we've had an economy driven by curiously high consumer spending. Stagnant wages had somehow failed to slow sales of flat screen televisions. But last summer's numbers were the worst in 28 years. What this means, in part, is that consumers have stopped borrowing -- for the past few years, our spending has been a function of borrowing, first on houses, then on credit cards -- because they no longer think themselves solvent enough to endure the debt. EPI charts the turnaround:
Thats "the largest fall since the Census Bureau began tracking [consumer spending] consistently over time." Since spending is in part a function of expectations about future economic performance (i.e, when consumers think the economy will be healthy, they spend. When they think it will be slow, they hoard), this suggests that folks internalized the economic turmoil even before Wall Street imploded (these numbers are from the summer). It also underscores the need for heavy stimulus: If there's no consumer spending creating demand in the economy, there will be no business spending creating demand in the economy. The only remaining player able to create demand is the public sector. And if there's no public sector spending creating demand in the economy, the recession could get quite a lot worse.
Thats "the largest fall since the Census Bureau began tracking [consumer spending] consistently over time." Since spending is in part a function of expectations about future economic performance (i.e, when consumers think the economy will be healthy, they spend. When they think it will be slow, they hoard), this suggests that folks internalized the economic turmoil even before Wall Street imploded (these numbers are from the summer). It also underscores the need for heavy stimulus: If there's no consumer spending creating demand in the economy, there will be no business spending creating demand in the economy. The only remaining player able to create demand is the public sector. And if there's no public sector spending creating demand in the economy, the recession could get quite a lot worse. 
