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Pushing the ever-present rock


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Recession or not, American consumers continue to show the kind of resiliency one normally associates with Sisyphus from Greek Mythology who was forced to endlessly push his boulder up a hill. Only for consumers the boulder seems to be getting bigger and the terrain looks increasingly steep. And yet the dramatic consumer pullback that's been forecasted since the first signs of the housing downturn has yet to materialize. The collective American Sisyphus cannot be stopped.

At least not yet. The latest government numbers on retail and foodservice spending revealed unexpected growth in the first quarter, even before the much-anticipated rebate checks arrived. This spring a number of large retailers reported better-than-expected same-store sales, and while many restaurants have slightly negative traffic, the first quarter showed signs of optimism.

The case for a sharp decrease in spending, though, remains intact. The housing downturn has yet to show signs of bottoming and tighter credit restrictions and falling prices mean home equity withdrawals are a thing of the past. Inflation is running about 4 percent, a higher annual rate than we've experienced for many years. And while unemployment remains at reasonable levels, consumer confidence speaks to a general unease.

Given this backdrop, how is consumption being maintained? Look no further than consumer credit. In the first quarter borrowing on revolving credit lines and loans for autos jumped the most since the last recession in 2001, and Americans now owe more than $2.5 trillion in non-housing related consumer debt. Credit card companies are experiencing rising delinquency rates, which may be the next shoe to drop.

The indebtedness of Americans – coupled with paltry savings – is lamentable, but hardly surprising. Given negative real interest rates, it makes more sense to borrow than save. We've built an economy dependent upon consumption at all costs, and come hell or high water, consume we will. 

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