Downsizing America

Here is a new fact of life: America’s economy is getting a little smaller. This “shrinkage” is likely to be a secular — as opposed to a cyclical — sets of changes.

Out goes the conspicuous consumption of the 1990s and 2000s . . . Lean and green is in; Grotesque and self-indulgent are out. Downsize that McMansion! Replace the SUV with something fuel efficient! Save instead of consume!

This is much more than a philosophical view — its what all of the economic data over the past year has been practically screaming.

In terms of actual data, here is what the new, leaner American economy looks like:

• Asset Deflation: Equity portfolios are on average down about 40%; Dividends are being slashed, stock repurchases canceled. Nationally, home prices are down 20-25%;

• Consumer Spending: Down significantly, after the US had its worst Xmas in 40 years. Savings rate has turned positive; Conspicuous Consumption replaced with Conspicuous Conservation.

• Retail Stores: Have been hard hit; Many chains are filing bankruptcy (Circuit City, Linens ‘n Things Sharper Image, Steve & Barry’s Tweeter, Mervyn’s); The survivors (Starbucks, Macy’s, Sears, Office Depot) are closing stores — some, as many as 10-20% or more of exiting stores. Retail shopping will emerge from the recession with a much smaller footprint than before;

• Employment: 3.6 million jobs lost already, with anywhere from 1 to 4 million more to go; Real Unemployment hit a record this past month;

• Finance & Wall Street: The Street has been hard hit — look for much smaller revenue, with staff cuts of 25-35%. The safest players? Those with green P&Ls, and/or substantial assets under management. In employment peril? Everyone else.

• Autos: US auto sales have plunged; Annual Sales are down 37%, from a 15 million annual run rate to barely over 10 million.Its not just Detroit, either. Toyota, Honda, BMW, Lexus are all suffering;

• University Endowments: The intellectual engine of America’s brain trust has just taken an enormous hit to the frontal lobe: Harvard, Yale, Stanford, others are down -25% plus over the past 6 months alone. The big endowments fund Professorships, grants, student scholarships, pure research. The loss will be deeply felt over ensuing decades.

• Wages: US Wages have been punished by globailization, and have been stagnant over the past 10 years; Now, we are likely to see contractions in wages over the next 1-3 years;

• Media: Cirucaltion at major newspapers are falling; Its likely that 50% of print Newspapers will be gone (or web only) in 5 years; Will Fox Business channel, which launched just at the peak of the Stock market in 2007, manage to survive this onslaught? Less than even money.

http://www.ritholtz.com/blog/2009/02/downsizing-america/