Despite a small rebound from crisis-lows, this long-term chart from Deutsche Bank keeps the rebound in perspective.
Americans’ discretionary spending remains at the lowest level in at least 60 years, as a percentage of GDP. This is despite strong sales of iPads and iPhone 4’s, which makes Apple’s (AAPL) continued success with new product launches even more commendable.
Note that we’d need about 5x the recent rebound to return discretionary spending back to previously normal levels.
Yet in a twist, Deutsche believes that since discretionary spending remains depressed, there’s less room for a large negative economic surprise on this front going forward.
Deutsche Bank’s Peter Hooper:
Finally, the U.S. economy today bears little resemblance to its pre-crisis state. Discretionary spending on durables and structures by households and firms (which drives recessions) has already been compressed to historic lows (Chart 15), and substantial progress has been made in mending balance sheets. Thus, there is much less “scope” for a sudden downturn than there was three years ago.
The economy suffered as discretionary spending dropped during the crisis. Yet the U.S. economy is now less dependent on this spending, since it remains far smaller as a proportion of GDP than before. Basically, people aren’t buying anything discretionary, so there’s little potential downside from this part of the economy. Mr. Hooper points this out as part of a broader analysis about where the economy could be at risk, the chart above isn’t ‘good news’, it’s just tapped out as a source of further major negative surprises. The economy is now driven in different ways than before, less by big-ticket consumer spending and of course less by the housing industry.
(Via Deutsche Bank, Bracing for the headwinds of financial stress, Petere Hooper, 30 June 2010)