Bloomberg: Turmoil May make Americans Savers; Worsening 'Nasty' Recession

Following up on our post yesterday in regards to the credit card issue - this is a very related story from Bloomberg. As I say, this won't be a "choice", it will be a necessity. This is a key point to understand not just because its "economic stuff" but because if you are making investing decisions over the next 2-3 years you have to look through the punditry who has been screaming for well over 9 months now to buy "consumer discretionary" because "the consumer will be back soon". They continue to use the wrong model - the early 90s and early 00s recessions - those are corporate led recessions. We're going back to the early 70s and early 80s models - consumer led recessions. We've warned about this since blog inception - it is only now dawning on even the financial folks - not to mention those folks outside the financial sphere who are completely missing this huge shift.

• The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not. With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending. (key word, forced)
• That is bad news for companies catering to them, which will have to retrench as well. Detroit automakers may need to slash costs and merge as Americans hold onto their cars longer. Shopping malls might be forced to shut as retail traffic trails off. Hotels may have to shelve expansion plans as vacationers become stingier with their dollars.
• The big concern is that households, spooked by the turmoil in financial markets, will cut back rapidly and sharply, plunging companies into bankruptcy and deepening a recession that many economists say has already begun.
• ``We are going through a quantum downward shift in consumer spending,'' says Allen Sinai, chief economist at Decision Economics in New York. ``Any industry that is tied to the consumer will have to downsize and consolidate.''
• From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, Commerce Department figures show. But Americans got out of the saving habit starting in the 1990s as they saw their wealth build up in other ways, first through surging stock prices and later through soaring home values.
• Household net worth, as measured by the Fed, fell $2 trillion in the second quarter from a year earlier -- and that was before the stock market's nosedive wiped about $3.9 trillion off investors' portfolios in the past month and a half. (staggering - the annual GDP is $13 trillion - to lose half the annual GDP in just a few months is simply amazing)
• ``Consumers are starting to realize that they've been living in a fantasy world,'' says Lyle Gramley, a former Fed governor who is now senior economic adviser at Stanford Group Co. in Washington. ``They will have to begin salting away money for retirement, their children's education and other reasons.''
• Americans have a way to go to catch up with their counterparts in other countries. The 0.4 percent of disposable income that U.S. households saved last year compares with 10.9 percent for Germany and 3.1 percent for Japan, according to the Paris-based Organization for Economic Cooperation and Development.
• In the long run, higher savings would be good news for the U.S. economy, because the extra money would help put household finances on a sounder footing and lessen U.S. dependence on investment by China and other foreign countries to finance economic growth. (agree!) In the shorter run, though, it will likely mean wrenching changes for companies that have become reliant on rapidly growing consumer spending.
• Retailers are also suffering a shakeout. A number have already filed for bankruptcy, including Mattress Discounters Corp., Marty Shoes Inc., cookie-maker Mrs. Fields Famous Brands LLC and Linens 'n Things Inc. As stores closed, vacancies at neighborhood and community shopping centers rose to a 14-year high in the third quarter, according to New York-based real-estate research firm Reis Inc.
• ``The consumer is dead in the water,'' says Howard Davidowitz, chairman of Davidowitz & Associates, a New York- based retail-consulting and investment-banking firm. ``We expect to see 10,000 to 12,000 stores shut next year,'' on top of almost 8,000 this year. (we love Mr Davidowitz here - if you haven't heard some of his earlier comments you must go here: Aug 14 - Howard Davidowitz - the only Realistic Retail Analyst in America?, or here: [Mar 30: Howard Davidowitz on US Consumer])
• The tourist industry faces tough times as well. Host Hotels & Resorts Inc., the largest U.S. lodging real-estate investment trust, said third-quarter profit fell 44 percent after cash- strapped consumer and corporate groups cut back on trips to Hawaii. U.S. hotels revenue per available room fell 8.1 percent in the week ended Oct. 11 from a year earlier
• ``The economic and financial crisis will have long-lasting effects on the consumer,'' Gramley says. ``The personal-savings rate is going to increase over the next five to 10 years.''

Once again - if its consumer discretionary in America, other than oversold bounces, it's in trouble for a long time. [Stuff I've Been Negative on Since Last Fall] If you are a CNBC bull you disagree with this and say this is a cyclical lull in a recession (that you denied would ever happen all year). We disagree with that assessment - this is going to be a structural change - even going to a Japan like national savings rate in the coming 3 years is going to be a body blow for consumer related companies throughout the country.