Breaking the Back of the U.S. Consumer

CHICAGO, September 9, 2008 —"Consumer spending has been expanding at a negligible 1.2% pace over the last year, well below the 3% threshold, and confidence in the economy has been deteriorating disproportionately. In fact, consumers are as nervous about the economy today as they were in 1980. This is despite significantly better overall economic conditions than we saw in 1980," says Diane Swonk, chief economist of Mesirow Financial, in her September issue of Themes on the Economy.

In her September newsletter, Swonk takes a look at the outlook for consumer spending, paying special attention to what has happened to consumer balance sheets over the last year, and any offset that the recent drop in commodity prices may provide for consumer spending, including:

• Real disposable income is deteriorating now that the tax rebates have been spent. A slow erosion in employment and rapidly escalating food and energy prices are the primary culprits.
• Debt levels have become debilitatingly high, forcing a surge in bankruptcies and home foreclosures.
• Credit conditions have continued to tighten, despite aggressive easing to keep liquidity flowing by the Federal Reserve.
• Net worth has fallen in response to declining home values and recent losses in the stock market, which will eventually raise consumers' saving relative to spending. Baby boomers are the most likely to forego some consumption and up their savings for retirement as they are the closest to retiring.
• Consumer sentiment has plummeted, which is dampening our willingness to take on additional debt and spending. It is worth noting, however, that consumer attitudes tend to tell us more about how we will vote (for or against perceived incumbents) than how we will spend.
• Oil prices, in particular, have plummeted almost 30% from their peak earlier this summer. However, prices remain more than 50% ahead of where they were a year ago and are still way too high to avert an actual contraction in consumer spending.

Implications for the Elections "The economy now outranks the war in Iraq as the most important issue that the next president must tackle. Ever since Roosevelt won against the incumbent, President Hoover, at the height of the Great Depression in 1932, presidential candidates have attempted to capitalize on bad economic conditions to gain favor with voters. It seems clear that Democrats will continue to gain more seats in Congress this fall, as most voters blame Republicans for the current economic malaise. The jury is still out on the presidential elections, however, now that McCain may finally be differentiating himself from the Bush administration," concludes Swonk.

The September issue of Themes on the Economy, as well as archived issues can be found at www.mesirowfinancial.com.

Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with $31.4 billion in assets under management and more than 1,100 employees in 30 locations across the country and in London. With expertise in Investment Management, Investment Services, Insurance Services, Investment Banking, Consulting and Real Estate, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals and was named one of Chicago's Best Places to Work by Crain's Chicago Business in 2008. For the fiscal year ended March 31, 2007, the firm posted $451 million in revenue, with more than $238 million in capital. For more information about Mesirow Financial, visit its Web site at www.mesirowfinancial.com.

For more information, contact: Diane Swonk, Mesirow Financial, 312.595.7122, or Olga Camargo, Mesirow Financial, 312.595.7128.

 

The Mesirow Financial name and logo are registered service marks of Mesirow Financial Holdings, Inc., © 2007, Mesirow Financial Holdings, Inc. All rights reserved. The information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. It should not be assumed that any recommendations incorporated herein will be profitable or will equal past performance. Nothing contained herein constitutes an offer to sell or a solicitation of an offer to buy an interest in any Mesirow Financial investment vehicle(s).

Securities offered through Mesirow Financial, Inc. member NYSE, SIPC. Insurance services provided through Mesirow Insurance Services, Inc.