Trend: Consumer spending in the US will soon start to slow, with global ramifications.
John Mauldin sees some economic corrections ahead that may not be smooth and gradual. Here are some excerpts from his Dec 23 newsletter addressing the economic imbalances that are global and significant.
The world economy today depends upon the American consumer being willing to not save and to borrow if necessary to support their spending habits. It is a burden for which we seem genetically designed and one at which we clearly excel. We spend, they produce. They send us all manner of goods and we send them electronic dollars, which in a twist of irony they have lent to us. It is sort of the ultimate in vendor financing.
Ultimately, the US is going to spend less and save more. I know, doubting the ability of the US consumer has been a losing call for 50 years, but we are getting closer to the time when consumer spending on "stuff" is going to slow. How can I say this?
For several reasons. First, we are going to see spending on health care rise another 3% in the next 8 years. That is almost $400 billion dollars. It will still be spent, just not on stuff.
Secondly, saving patterns are going to change. When, not if, we see the next economic slowdown, we will see another drop in the stock market. If we get a full blown recession, the average drop is 43%. ...Denial, anger, despair and finally reality hits and they re-set expectations and start a new plan which will mean more saving and less spending.
The first of the baby boomers reach 62 in 2007. ... As boomers start to retire, they are by definition going to spend less because they will be making less.
Further, a great deal, as much as 3% of GDP growth has come from mortgage refinancing.
Taken together, what it all means is that growth in consumer spending is going to slow dramatically over the next 5 years. No sudden fall-off-the-cliff experience, just a gradual Muddle Through slowdown as the imbalances are into a more stable equilibrium.
And gradual is what everyone is hoping for. It is the best of all possible worlds.
...Can things go that smoothly? Sadly, probably not. It will probably be ... an economic storm. Something will push somewhere on the disequilibrium and the stability that we now sees shifts.