The Consumer-Driven Economy at a Crossroads

Robert P Yerex

Business Economics, 2011, vol. 46, issue 1, 32-42

Abstract: Personal consumption expenditures accounted for some 70 percent of GDP prior to the Great Recession. The normal role of consumers in U.S. economic modeling was as recipient of all practical consumer goods and services production. Much of the increase in consumer spending was fueled by greater use of debt, through new forms of leverage such as low cost loans secured by home equity. During the recent recession, two forces combined for a perfect storm: the first was untested financial innovation (subprime mortgages) leveraging the second, an asset bubble (housing markets). In addition, revolving credit card borrowing peaked in mid-2008. This paper uses an innovative Retail Employment Index to help describe recent consumer behavior and presents a simple means of representing consumer retail spending within the constraints of the “new normal.”

Date: 2011
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