And on the asset side of the equation, things look even more bleak.
Household net worth is now just over $50-trillion – rich compared with most countries, but still $14-trillion below where it was two years ago, a result of a relentless slide in housing prices.
Washington's $789-billion stimulus package has helped to stabilize the economy, raising incomes by 1.4 per cent last month and boosting spending a modest 0.3 per cent. Yet the U.S. government has merely supplanted the U.S. consumer as the world's buyer of last resort, and that can only be temporary.
As Treasury Secretary Timothy Geithner said in a speech during a recent trip to China, economic recovery will depend upon a fundamental rebalancing of global trade and spending habits. “In the United States, savings rates will have to increase, and the purchases of U.S. consumers cannot be as dominant a driver of growth as they have in the past,” he warned.
“Globally, recovery will have come more from a shift by high-saving economies to stronger domestic demand, and less from the American consumer.”
This is one of the more popular refrains among those looking for a saviour: That the Chinese will step into the breach and begin spending more.
Maybe that will happen eventually, but don't bet on it any time soon.
It's tough to persuade Chinese consumers, who have made thrift a virtue, to spend considerably more money when they lack the social safety net of their counterparts in the West.
Between 2001 and 2008, annual Chinese exports to the United States tripled to $338-billion – five times the amount of U.S. exports to China, according to Peter Morici, an economics professor at the University of Maryland.
Filling the void
China is slowly taking steps that should help narrow this huge trade imbalance, and it should be noted that consumption rose there in the first quarter thanks to some aggressive stimulus.
But building infrastructure, putting health care in place and changing cultural attitudes is no short-term project, and it could be years before increased consumer spending meaningfully rises as a percentage of the country's GDP.
“It is almost mathematically impossible for China and India – either alone or together – to fill the void that is now being left by the post-bubble American consumer,” said Stephen Roach, chairman of Morgan Stanley Asia.
He notes that although the United States accounts for about 4.5 per cent of the world's population, it consumes $10-trillion annually. In contrast, China and India are home to 40 per cent of the global population, but account for just $2-trillion in spending.
Mr. Roach estimates that U.S. real consumption expenditures were likely down a record 1.5 per cent over the 12 months preceding the end of the second quarter – bad news not just at home, but abroad, particularly in China.
A fine line
This has placed Washington lawmakers in something of a quandary. They don't want Americans to return to their profligate ways, yet at the same time the legislators fear a sudden pullback in consumption could stall a nascent recovery.
“President [Barack] Obama wants short-term personal consumption and long-term personal savings,” Mr. Lieberthal said. “Fundamentally, there are contradictions everywhere. There are no simple answers.”
And no quick solutions. With the American consumption machine winding down, it will take considerable time, and political suasion, to achieve a new economic equilibrium.
There has been much talk about a recovery in the latter part of the year, but the likely shape of that recovery isn't terribly inspiring. The Bank of Canada has forecast growth of just 2.5 per cent in 2010, and estimates that will be roughly double the rate in the United States.
These are anemic numbers – until you compare them with the pessimistic forecast of the Organization for Economic Co-operation and Development, in which case they look positively exuberant.
The OECD is predicting growth of just 0.7 per cent for Canada next year.
The recovery, in other words, will be slow and grinding. And while it's encouraging to know the pain won't get any worse, that doesn't mean it won't continue to hurt.
