May 10, 2001

Consumers Aren't Spending With Confidence

Retail sales may have grown in April, but they are far from robust. And the numbers are certainly not reassuring. The only thing that these numbers confirm is that consumers are flocking to discount retailers such as Wal-Mart in search of bargains. That tells us Americans are starting to feel the pinch of higher energy prices and massive layoffs. We won't be surprised to see them slam their wallets shut in the coming months.

Americans have piled on credit card debt and remortgaged their homes in order to keep their heads above water. But this debt burden has become crushing. Consumer spending has been the saving grace of the economy during this downturn. It accounts for two-thirds of the GDP. But now, with the added pressure of skyrocketing gas prices, energy prices, and unemployment actually knocking on the door, consumer spending will likely vanish -- and leave a recession in its place.

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