CONSUMER RIGHTS
Consumers on the verge of a nervous breakdown
Wednesday 30 April 2008
Armed with the shopping cart, the consumer really is king. And these days, it's an unhappy king.
Consumers on the verge of a nervous breakdown
Wednesday 30 April 2008
A future indy filmmaker looking to bring the global economic crisis to the Big Screen could do far worse than the title, “Consumers on the Verge of a Nervous Breakdown”.
It would hardly be overstating the case (apologies to Almodóvar).
Consumers are a galvanizing force in almost every developed economy –they account for a whopping two-thirds of US GDP – so any sign that they are feeling woozy is usually an omen of worse to come.
That’s why we can talk until the cows come home about an economic recovery on the cards.
In the final reckoning, it is the consumer - armed with a shopping cart and some real disposable income - who will have the final say on when this economic dust storm settles.
Judging by the latest indicators, that verdict is still a way off.
On both sides of the Atlantic, many measures of “consumer confidence” (the euphemistic term adopted by economists) are languishing in negative territory.
American households are in an epic funk, more downcast about the state of the US economy than at any time since American tanks rolled into Iraq in March 2003.
Consumer sentiment slumped to a five-year low in April as banks remained tight with credit and food and energy costs stretched household budgets to the limit.
In the first quarter, the number of Americans at risk of losing the roof over their heads almost doubled as foreclosures rose. House prices, meanwhile, saw their biggest decline in February in 21 years. An index of 20 big metropolitan areas showed prices falling at an annual rate of 12.7%.
When your mortgage costs more than the value of your home – or worse, when you no longer have a home – the ability to spend money on anything but the most basic necessities is vastly diminished, if not entirely destroyed.
The conventional wisdom (until now) has been that Europe has withstood the worst of the US subprime storm. But economic indicators are showing cracks – in some places, gaping fissures - in the edifice.
In France, consumers are grimmer now than at any time in over two decades. Inflation of 3.5% is making a mockery of President Nicolas Sarkozy's campaign pledge to boost purchasing power. The worry is that sagging consumer confidence will lead to more frugal spending.
Meanwhile, in Britain, household sentiment is at its lowest ebb since 1992. The distressed housing market is a major culprit: UK house prices fell for the sixth straight month in April. They've now fallen 1% over the past year - the first annual drop since 1996. We’re a far cry from the insatiable property binge of a couple years back.
British consumers are among the most indebted in the world. The Wall Street Journal recently estimated that total household mortgage debt in Britain stood at almost £1.2 trillion at the end of 2007, about 84% of the country’s GDP. Digging oneself out of this debt mountain is going to be a tall order.
For a sequel to Consumers on the Verge of a Nervous Breakdown (apologies again to Almodóvar), that indy filmmaker might want to consider: All About My Mortgage.
