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Jun. 13 2010 - 9:30 am | 3,348 views | 1 recommendation | 23 comments

Retail sales are down because Americans are crazy

NORTH MIAMI - MARCH 13:  Michael Kaire (2nd L)...

A full shopping cart is a sign of mental health. Image by Getty Images via @daylife

Faced with seemingly contradictory financial data–retail sales dropped in May but consumer confidence rose–the stock market plunged and then soared Friday, ending slightly higher on light trading.

This erratic behavior tested the financial press, which tasks itself with finding psychological explanations for financial data. Here is Yian Q. Mui, for example, writing in yesterday’s Washington Post:

The constant barrage of complicated and often contradictory data on the state of the economy has left American consumers dazed and confused and reluctant to spend.”

I admire Mui and recognize that her mission is a daunting one: psychoanalyzing the American consumer, a writhing hydra with hundreds of millions of heads. I think it’s worth exploring what Mui discovers. The first thing to notice in the sentence above, Mui’s lead, is that American consumers analyze economic data in order to decide whether to shop. And whether we shop is, of course, the stuff of financial data.

Through a feat of prescience we analyze the data that analyzes us. It’s as if we receive advance reports on whether we’re going to shop–and how confident we feel–before we decide whether to shop, and before we feel how we’re feeling.

This paradox should not surprise anyone–for if we Americans are expert at anything, it is shopping (even with retail sales down 1.2 percent, we spent $362.5 billion in May). Apparently, we develop a kind of sixth sense about it.

Setting aside this accomplishment, we find beneath it a diagnostic premise: the consumer who does not spend is dazed and confused. This means the consumer who spends is… what?

Sane and serene.

The behavior of sane Americans, according to this premise, is to spend. It’s what we do when all is right with the world. It’s what we don’t do when we have bees in our bonnet or bats in our belfy.

“We’re all schizophrenic,” David Wyss, chief economist for Standard & Poor’s, tells Mui. “People remain nervous about borrowing money and about spending money, and they darn well ought to.”

Wyss brings a new gerund into play: not just spending but borrowing. Why the hell aren’t Americans borrowing and spending? They must be crazy. Sane Americans would borrow money and spend it.

Last week, the Federal Reserve released a report on consumer credit. Americans owe $2.44 trillion, it said, and indeed, that’s $100 billion less than we owed during the closing years of the Bush Administration.

We could be borrowing less because we’re insane, but isn’t there another possibility? I’m not an economist, or even a financial reporter, but it seems to me that the opposite psychological explanation is equally plausible:

What if Americans shop when we’re dazed and confused and don’t shop when we’re sane?

What if consumer confidence is up because Americans rightly perceive the economy improving, and retail sales are down because Americans rightly perceive the folly of spending more money than we have?

We just survived traumatic upheaval caused by profligate spending, fueled by debt, in which we inflated the economy by burdening our heavily mortgaged lives with loads of unnecessary crap: not just ShamWows and Snuggies and the Big Mouth Billy Bass, but also cars, houses, and wars we don’t need.

Having experienced that collapse–remember, just two years ago our banks were near failure–perhaps Americans have wised up. Perhaps we’ve realized we don’t need, and could never really afford, all the crap that fills our homes and charge-card accounts.

So we’re going to buy less of it.

This sounds sane to me. But I might be crazy. It’s a very troubling thought in economic circles because consumer spending makes up about 70 percent of U.S. economic activity.

It’s a thought that eventually percolates to the surface of Mui’s report in the Washington Post:

“Is it possible that Americans can feel good,” Mui asks, “without spending money?”

Faced with a perplexing question, Mui does what any financial reporter would do–she interviews an American consumer. Mui finds Venita Murphy in front of a rack of blue jeans at Macy’s.

Sure enough, as she fondles a pair of jeans–which are marked down 40 percent–Venita is busily analyzing economic data:

Venita Murphy, 52, of Clinton has seen news about the stock markets going up and down and back again. She said she thinks the economy is getting better, particularly in housing prices, but she’s not sure. Murphy said she has noticed more people begging for money and the Metro feels more crowded with folks hunting for jobs.”

In the end, with the Washington Post as her witness, Venita decides not to buy the jeans. Likewise, Mui informs us, Venita won’t be going on any cruises this year.

We have two possible psychological explanations for Venita’s behavior. According to Mui and Wyss, Venita’s behavior is dazed and confused and schizophrenic.

If she were sane, she’d be sipping a mai tai on the deck of a Carnival cruise ship right now, brimming with pride that she saved 40 percent on her new jeans… giving not the slightest thought to next month’s credit card bill.

And that would be the best scenario, in fact, because when Venita begins to act too frugal her doctor could prescribe an anti-psychotic medication–clozapine, say–to get her back on board.

But what if the opposite explanation is correct, and Venita is actually being sane by choosing not to put those jeans, or that cruise, on her credit card?

The American economy would have to shrink or change.

And that’s a difficult and unpleasant thought. The president who endorses, or even presides over a shrinking economy is soon working on his presidential library. And Americans accustomed to an economy driven by profligate spending would have to take up another economic activity in its place. Like what? We don’t know. So let’s go back to the insanity premise.

We’re all a bit dazed and confused and schizophrenic right now, and consumer schizophrenia produces investor anxiety. This explains not only the contradictory financial data, but also the market fluctuations. According to the Associated Press:

Friday’s reports follow a trend over the past month showing an uneven recovery, which has added concern to a market that is already struggling with worries about Europe’s economy. The Dow has mostly fallen since late April as investors worry…. Analysts say everyday investors are still nervous about the market and economy, and are sitting on the sidelines.

These are conditions we can treat, luckily. Clozapine for consumers, clonazepam for investors. That should get things back on track.


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  1. collapse expand

    “What if Americans shop when we’re dazed and confused and don’t shop when we’re sane?” You better watch what you say Mr. McMaho! We’ll have none of that crazy talk here … if you’re not pro-shopping you’re downright anti-American!!

  2. collapse expand

    In the spirit of your remarks, what can you say about a newspaper business reporter who doesn’t understand that “The Customers are Never Wrong” Hmm. Maybe this is what’s wrong with newspapers?

  3. collapse expand

    Government pay and employment is up…..why don’t the finks in government go out and spend a little?

  4. collapse expand

    The operative term here isn’t “schizophrenia” it’s “cognitive dissonance.” This cognitive dissonance arises from our inability (or refusal) to distinguish between reality and what we believe about it.
    The reality is we’re witness to the beginning of the end of growth-based consumer economies. Growth-based consumer economies are not possible post-resource peak. As I’ve tried to point out before, you can only operate a growth-based consumer economy with growing resource supplies. If you cannot “grow” material through-puts you cannot “grow” the inventory of consumable products.
    The industrial West is only now beginning to feel the financial shockwaves from resource supply peak; as we move past that peak and start seeing real shortfalls in material through-puts we will start to experience material shockwaves.
    Of course, “material shockwaves” is just a euphemism for breadlines and riots.

  5. collapse expand

    Great post.

    I don’t even understand the mindset of shopping for amusement with money you don’t have and paying huge APRs for the privilege. How much crap, indeed, can anyone own or use?

    I wonder if or how Americans will truly rein in spending when an addiction to cheap credit (gone)has to be broken.

    There is, also, an element of hopefulness that is part of this — if all we ever do (or able to do) is buy gas, groceries and food (and pay down educational or mortgage debt), we are nothing more than wage slaves. One does need to have some fun…These days I am much more interested in spending what little disposable income I have on experiences (a concert, a meal) than things.

  6. collapse expand

    Mr. McMahon,

    The term “schizophrenia” is often misunderstood to mean “split personality”. This is incorrect, “schizophrenia” actually means “shattered personality”. The economic writers are actually trying to capture the notion “multiple personality disorder” (MPD). People suffering from MPD appear to the outside world to be “crazy” in that they behave in wildly contradictory fashions.

    This does indeed express how the American consumer behaves, if we understand that metaphorically there is but a single consumer. While the “Great Recession” has severely impacted some people, it has left others untouched. Who is impacted, when, and by how much changes as the unstable economy tosses people about. As a result, the economic behavior of consumers gyrates wildly in seemingly contradictory fashion that changes quickly over time, as a person with MPD might.

    The US economy is extremely large and complex and it is very difficult to determine it state of being. What economic indicators like consumer confidence and consumer spending attempt to measure is how much income consumers are earning. Generally, as consumers get more money, they spend more money. So if consumer confidence and spending are up, consumers must be earning more money, and of course vice versa. Of course nothing is really quite so simple. Consumers are often hesitant to spend money, even if they have it, if they fear that they are going to loose their job.

    All of this of course is “sane and rational”. The “irrational” part is that some people, even if their jobs are secure and earning good money, stop spending as much money though a “sympathetic reaction” to the news around them. Their friends, relatives, neighbors, or just people in general are doing badly, they become more caution, even though they have no obvious reason to be. For people like Ms. Mui, this seems “crazy”.

    Play this out over time and region and you can indeed have a composite American consumer who seems to have “multiple personalities”. However this is not at all “crazy”. When faced with multiple and contradictory economic realities that change rapidly, it would be crazy not to have multiple economic responses. MPD is a response to irratic and stressful reality in individual people and composite consumers alike.

    • collapse expand

      Thank you, David, for another of your cool and collected comments. You’re quite on the ball about the metaphorical descriptive power of categories of mental illness and more loosely associated terms like “crazy.” I’m not entirely comfortable with referring to consumer behavior as schizophrenic when there are many people in the world actually suffering through schizophrenia, and thank you for the opportunity to bring out this point.

      I wonder if one principle you express–that generally as consumers get more money, they spend more money–could be changing. Many people have debt they could pay off. Many have probably realized how little they need of what they acquire. Many may even be realizing, now that they’ve experienced a taste of economic hardship, that money can’t buy you love, happiness, or even contentment.

      In response to another comment. See in context »
  7. collapse expand

    We just had a great five-day vacation up in Canada and every day we were there, (spending $$$ that could have gone into the U.S. consumer economy instead…zzzzzzzzzz) I was enjoying the stuff of extraordinary memories to savor for as long as I live. I went canoeing and, barely 10 feet away from me, two beavers swam by. There is no price tag for something (to me) so amazingly cool. Keep your malls and stores….

    I don’t lie in bed and dream about shoes or cars or a flat-screen TV — crap you can buy in a store — when virtually everything in my life I most value (save a few things) has been an experience, not something stuck in a closet or garage.

    I often think Americans who blow $$$$ on crap have severely limited imaginations.

    • collapse expand

      Keep your malls and stores…

      Since buying our house (after 20+ years of renting) my favorite places to shop have been hardware stores because they had paint, and tile, and anything else a person could want for a house that [s]he owned. While I’m sure shopping at Lowe’s and Home Depot isn’t that different from shopping at Penney’s and Macy’s to me it means buying something that improves my life so I don’t see it as being all that different from paddling a canoe while watching 2 beavers swim by — especially when I am out on my deck watching my schnauzers romp in the yard :-) .

      In response to another comment. See in context »
  8. collapse expand

    The numbers are really insane: They were down and they were up! If you “ex” out building materials, autos and gas, “core” retail sales (clothes, TVs, etc) were up 0.1%. Main Street went to the mall and brought home a few packages. I’m not sure how sane that was. But one thing is totally clear. Government subsidies produced entirely rational behavior. Credits for appliances and home purchases ended last month, and building material sales then plunged 9.3%. So you won’t find very long lines at Home Depot these days, a very sane response.

    A hilarious post.

  9. collapse expand

    I agree about hardware stores, etc…I also own my place and am always happy to spend money on items that improve it (and add to its value.)

  10. collapse expand

    No the clown in the white house, who could very well fill in for helen thomas…….wants to give another $50 billion to state and localgovernment, cops, fire, schools…..to buy off public employee unions before the november elections…”to avoid “massive layoffs of teachers, police and firefighters”

    http://www.washingtonpost.com/wp-dyn/content/article/2010/06/12/AR2010061204152.html

    Why shouldn’t they be laid off…we have too many public employee feeding off of the taxpayers

  11. collapse expand

    Sill me.
    I thought sales were down because no one has any disposable income.

    Don’t worry, I’m sure the chosen one will fixing EVERYTHING, just like he promised during his campaigning….ha ha ha
    too funny.

    Hope and Change – HA HA
    Suckers

  12. collapse expand

    Even sillyer me (sillyer?)

    http://www.nytimes.com/2010/06/14/world/asia/14minerals.html?emc=na

    Now the ‘terrorists’ win, buy up all the good stuff and declare war on them selves.

    Ah,the circle of life.

  13. collapse expand

    Fantastic post. Will debt-funded consumer spending return to fuel economic expansion? Will people continue to consume sugar, fat, and enriched flour and then reach for the pill bottle to deal with the conse3quences? Will we continue to burn hydrocarbons when there are healthier alternatives? Will we continue to wage wars in faraway lands where we cannot even comprehend the culture? Will we continue to buy inferior crap form the Chinese that does little or nothing to improve the quality of our short time on the planet? Will we we continue to elect scumbag politicians offered by corporate-government cabals? The answer to all of these questions is no. Believe in the power of the possible. This is America.

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    Environmental reporting recruited me 25 years ago—on my first day as a reporter for my college newspaper, when I discovered my college was discarding radioactive waste in the regular city trash. Since then I've written hard news for dailies, including the Arizona Republic, and slanty news for alternative weeklies, including Newcity. I've written a column for New Times, stories on the Web for Forecast Earth, essays for PEN International and other magazines. I lived in an idyllic California village nestled among volcanoes and vineyards until my batteries were full of sunshine, and then I returned to my origins on the South Side of Chicago, where hope persists with no illusions about the struggle ahead. I cross the asphalt jungle by bicycle and el, mostly to get to the University of Chicago, where I teach journalism. But what matters more than any of this is a lifelong love for the natural world. We are all born with it, I believe, but some turn away.

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