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<br />e i ~n er etter
<br />FORECASTS FOR MANAGEMENT DECISIONMAKING
<br />1729 H St. NW, Washington, DC 20006-3938 • kiplingerbiz.com • Vol. 85, No. 7
<br />Dear Client:
<br />Is the Consumer Age dead? Hardly.
<br />Americans won't suddenly lose their affection
<br />for new cars, fashion fads and techno-gizmos.
<br />® But the age of superconsumption may be.
<br />' And that spells change for the economy.
<br />Americans are tightening their belts.
<br />Consumer spending will gain about 1.7% a year
<br />in 2008 and 2009, after growing between 2.8%
<br />and 3.6% a year for the past five years.
<br />There's a whole slew of reasons:
<br />Job worries, with unemployment on the rise.
<br />Stingier lending, as credit card companies
<br />tighten their standards, reduce spending limits
<br />and ignore falling interest rates elsewhere
<br />in the face of their own rising delinquencies.
<br />Higher gas prices, siphoning about $91 billion
<br />from consumers' discretionary income this year.
<br />And most of all...declining home prices,
<br />effectively ending the use of home equity
<br />as a cash machine to support consumer spending.
<br />Washington, Feb. 15, 2008
<br />j, I GDP ^yrcw*.h
<br />T Slowing to 1.5% in '08
<br />Interest rates
<br />.~,.~ Prime rate at 5.5% by mid-'O8,
<br />~ 10-year T-notes yielding 4%
<br />j Inflation
<br />Easing to 3% in '08
<br />i
<br />.~Ob grOWth NEW
<br />i Slowing to 800,000 in '08
<br />i ................ _............. _ _. _............... _....
<br />;Crude oil
<br />i Averaging around $85 this year
<br />i........_............_ .............................__ .._
<br />I Housing sales
<br />Falling 10% in '08
<br />..._.._I__ ......................._.... ,._ ...._.__.....
<br />j Retail sales growth
<br />Slowing to 2% this year
<br />i ...................... _........, .......................
<br />Trade deficit
<br />Easing to 4.7% of GDP in 'OS
<br />Complete economic.outlook at
<br />k ipiingerbiz.com/outlooks
<br />The result: A big hit to economic growth. From 1999 to 2007,
<br />the share of GDP coming from consumer spending barreled from 68% to 72%,
<br />far more than that of most other developed economies. In the U.K.,
<br />consumers account for 66%...in Germany, 59%. In Canada and Japan...57%.
<br />A drop back to 68% in the U.S., as we expect over the next three years,
<br />amounts to lopping about half a trillion a year off economic activity.
<br />That's three times as much as the total stimulus this vear.
<br />And only about half of that stimulus will actually pump up the economy.
<br />A third of the taxpayer rebates will be saved or used to pay off debt.
<br />Business breaks won't spur more spending, they'll just add to profits.
<br />Contributions to GDP
<br />(in trillions) roaecnsr
<br />f^
<br />1~ business Spending -
<br />i f i,overnment Spending _
<br />'04 'OS '06 '07 'OS
<br />Sources: Department of Commerce, Kiplinger
<br />Some industries will feel it more than others:
<br />Automakers, especially Detroit. Already skidding
<br />and now headed onto a more treacherous track,
<br />they'll find it tough to marshal the resources
<br />for new models...key to their turnaround plans.
<br />Their market share will deteriorate further
<br />and drag small suppliers down with them.
<br />Advertising firms. They're facing a buzz saw,
<br />with many customers...food, retail, airlines,
<br />financial services, etc...cutting spending.
<br />Retailers, especially specialty apparel stores.
<br />Some will be swallowed up...some, go belly-up.
<br />The Kiplinger letter (ISSN 1528-7130) is published weekly for $117rone year, $199Itwo years, $263lihree years SubSCllpti0n inquilie5: 800-544-0155 or subservices~a kiplingeccom
<br />by The Kiplinger Washington Editors, 1729 H St., NW, Washington, DC 20006-3938. EditOnel In101lr1ati0n: Tel., 202-887-6462; Fax, 202-778-6976;
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