David Knopf of Massachusetts has cut back on restaurant meals and trips to Whole Foods, and has started buying used household goods off Craigslist. Alethea Smalls of Maryland now borrows library books for her daughter instead of purchasing new ones. In Chicago, Claudia Prindiville has started clipping coupons and buying clothes off the sales rack. “All the talk about how bad it is out there has started getting in my head,” Prindiville says. “I am definitely buying less.” Across the country, said Louis Uchitelle in The New York Times, nervous Americans are reacting to the growing financial crisis by snapping shut their wallets. Auto sales are plummeting, airline traffic is dropping, and restaurant managers are looking out over acres of empty tables. A generation that is accustomed to living beyond its means is now scrimping like Scrooge. “I do not spend like I used to at all, even when I have the money,” said 39-year-old Stephen Morris, a construction worker in Centreville, Va., as he ate from the Dollar Menu at McDonald’s. “Even when you have it, you’re scared to spend it.”
For retailers, the fear will probably mean the worst Christmas sales in years, said Jenn Abelson in The Boston Globe. Consumer confidence is shattered, as people watch banks and insurance companies fail, and their 401(k) retirement accounts drop by 20 percent to 30 percent in a matter of weeks. “It’s not something that my generation has ever experienced,” said Charlotte McCormack, 36, of South Boston, who has decided to make Christmas presents this year instead of buying them. “Nobody seems to know where it’s going.” Even the well-off are running scared, said Geraldine Fabrikant in The New York Times. Millionaires are selling private jets. Sales of luxury goods, such as jewelry, vacation villas, and $1,000 bottles of wine are dropping off dramatically. “The superwealthy in America are in a state of shock,” said Ronald Winston of high-end Manhattan jeweler Harry Winston.
If both the wealthy and the middle class stop spending, said Ylan Mui and V. Dion Hayes in The Washington Post, it’s easy to predict where this is going: a deep recession. Consumer spending accounts for about 70 percent of our $14.5 trillion economy. For the past 20 years, consumer spending was the one thing the nation could rely on “to keep it going when economic times got tough.” But consumer spending had already begun dropping before the crisis of recent weeks. Some experts are warning that frightened consumers might withdraw into their shells for years.
A little perspective, please, said Robert Samuelson in The Washington Post. It’s natural, as we watch the federal government’s strenuous efforts fail to calm panicked markets, to wonder if this is “1929 all over again.” It’s not. The Great Depression was triggered when half the banks closed, the stock market fell by 90 percent, and unemployment reached 25 percent. Since the late 1940s, the U.S. has suffered through 10 recessions, with the worst lasting no more than 16 months. Every one was followed by periods of prosperity. Still, don’t be surprised if the next recovery takes a long while to get here, said Bernard Condon and Daniel Fisher in Forbes. Nearly all Americans feel a lot poorer, because so much of the value of their homes and investment accounts has melted away so rapidly. That kind of shock lasts, keeping consumers cautious until they see their investment accounts and home values coming back. As Merrill Lynch economist David Rosenberg put it, “Welcome to the frugal future.”