Predictably, Consumer Spending Declines

Bloomberg reports that American Express beat Q1 profit estimates. However, consumers spent less:

The company has posted profits and set aside more reserves for failed loans this year as surging U.S. unemployment makes it harder for customers to repay debt. The jobless rate reached 8.5 percent last month, a 25-year high, and American Express said today that it expects the rate to reach 9.7 percent in December. Consumers also spent less, charging an average of $2,391 in the quarter, 16 percent lower than a year earlier.

This is just an anecdote, so I decided to update my chart of total consumer credit outstanding.

I still am skeptical that consumers will soon be spending at 2005 levels. I feel that this crisis has possibly marked the beginning of a gradual shift towards less consumer spending. With a dramatically lower level of consumer spending, repayment of substantial debt, and baby boomers and others removing money from the stock market permanently, I think we will be lucky if the S&P surpasses its highs within the next seven years. I hope I’m wrong, but I feel like we’ve lived too high on the hog for too long not to endure a painfully long period of readjustment.