U.S. Consumers Are Finally Shifting Into Lower Gear

By James C. Cooper & Kathleen Madigan, BusinessWeek

Since this economic upturn began almost four years ago, the consumer has powered the gains in demand. But now this Energizer Bunny looks to be slowing down. That’s not necessarily a bad thing, since the business sector and the government’s hurricane-rebuilding effort will pick up much of the slack, and a spending pause will give shoppers time to pare down debt loads and add to savings. But considering that household buying accounts for more than two-thirds of real gross domestic product, any turn in this sector changes the direction of the overall economy as well.

The latest spike in oil prices along with the Federal Reserve’s resolve to hike interest rates have accelerated the erosion in consumer fundamentals. Cheap loans are becoming a thing of the past. Faster overall inflation is squeezing purchasing power. And most important, a house can no longer be treated as a piggy bank, a reversal of fortune that could cause a bigger drain on the economy than the slowdown in home construction alone.

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