History's lesson: No recovery without consumer spending
Since the 1930s, consumers have been key to lifting America out of a downturn.
If the past is any guide, the US economy will depend on home-grown momentum to rise out of recession.
The history of upturns from economic slumps in America since the 1930s is straightforward: Consumers shoulder most of the burden. Often a big boost also comes from business investment, including home construction.
That lesson is part of what's weighing on Wall Street, with stock indexes Monday posting their worst day since early July. Investors are wondering whether US consumers will have the oomph to lift the economy, and corporate profits, in the year ahead.
The Dow Jones Industrial Average fell 2 percent Monday to close at 9,135.34. The fresh doubts about the vigor of a consumer-led recovery also tempered commodity prices. Oil dropped below $67 a barrel as traders focused more on weak demand than on tropical storms that threatened oil production sites.
If history lays a big burden on consumers, it also may offer some comfort to edgy Wall Street traders: Consumer spending tends to rise once the worst of a downturn has passed. That was true in the 1930s, even with a tide of home-loan defaults and with the stock market way down from its 1929 peak. It was true in the early 1980s despite high unemployment.
But the track record also shows that if consumers get off to a weak start, the economic recovery itself can be tepid. The latest example: For five straight quarters starting in 2002, consumer spending rose at annual rates below 2 percent. With business investment also slow, that period became a so-called "jobless recovery."
Another sobering history lesson is that there aren't many examples of exports or government stimulus (aside from war spending) lifting the economy. Perhaps President Obama's record $787 stimulus will be an exception. Typically, trade and government are forces at the margins, modestly tugging the gross domestic product up or down.