Consumers aren’t so dumb.
This is a scary graph (the thin line). In January, the outgoing administration released its annual Economic Report of the President as reported in the NYT Economix blog. The chart below–from that report–shows how real consumer spending fluctuates with real wealth. As you would expect, there is some damping. It looks like historically this damping reduces the amplitude of spending change to roughly half that of the real wealth fluctiation. What’s scary of course is the huge fluctuation over the past 8 years.
There is reason for calm (the thick line). It seems the system may be to some degree auto-governing. That is, the damping factor has significantly notably increased beginning approximately the same time the volatility took a hit. Smart consumers quietly, instinctively and collectively closing the hatches as and unprecedented storm darkens the sky?
