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Fallout: The Financial Crisis

Santa could be hauling a lighter load

Marketplace Staff Oct 15, 2008
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Fallout: The Financial Crisis

Santa could be hauling a lighter load

Marketplace Staff Oct 15, 2008
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TEXT OF STORY

Kai Ryssdal: I said forget the Dow. I didn’t really mean it. The blue chips, fell another 733 points today, in large part because of a huge drop in retail sales last month. Down 1.2 percent, the steepest in three years.

So, for extra credit, and the Ben Bernanke Memorial Prize in economics, just how do you rescue an economy driven by consumer spending when those consumers aren’t spending? From Washington, Danielle Karson reports you cross your fingers — and hope.


Danielle Karson: The Feds are doling out billions to banks to keep the economy moving, but economists say that may not be enough to keep the country out of a long recession, if consumers don’t start spending soon. Mark Gertler is an economics professor at New York University.

Mark Gertler: I don’t want to call it dire. I mean, over the post war, we have recessions, and consumer spending is the largest component of consumer spending; and a drop in it is a sure signal of a downturn. And that’s what’s happening.

It’s not just the gyrating stock market that’s got consumers spooked. Housing prices are still dropping, credit is tight and job losses are mounting. Joel Naroff is an economist with Naroff Associates.

Joel Naroff: We’re looking at a recession already. Consumer spending is gonna be a major drag on the economy, more than likely through the rest of this year and possibly into the beginning of next year.

Larry Compeau is a professor of economics at Clarkson University. He specializes in consumer behavior and says retail sales aren’t likely to turn around any time soon.

Larry Compeau Unless there’s a miracle, I don’t see why consumers would start all of a sudden spending again.

That could mean the worst holiday shopping season in years. But Economist Naroff says there may be a bright side. He says retailers could get a boost if the bailout plan succeeds or if Congress approves a second stimulus package that puts money back into peoples’ pockets.

Naroff: Once a little bit of optimism comes back, I think spending will start improving; maybe not at a very rapid pace, but they’re gonna be spending nonetheless.

In Washington, I’m Danielle Karson for Marketplace.

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