Sunday, November 30, 2008

Grouping recession

Can recession be grouped as good and bad? It appears so. Prof.Ray Barrell of the National Institute for Economic and Social Research, a London-based think tank, has two pieces of bad news. The first is that this is the wrong sort of recession: Because it was precipitated by a banking crisis, consumption may well fall much more dramatically. That's plausible: Consumers who want to smooth consumption can't borrow to do so. It is also what has happened during the 14 banking crises, in various high-income countries, that Barrell and his colleagues have studied.

The second piece of bad news relates to the first. Because consumers were already borrowing heavily in the good times, both credit constraints and a long-overdue realism are likely to bite all the more deeply. That, too, is a tendency Barrell finds in the data.

Of course, as the lucky sellers of herbal Viagra are alleged to be discovering, when consumer spending falls, some products do well and others do very badly. Nervous retailers looking for cues might wish to pick up research from the 1990s in an article by economists Martin Browning and Thomas Crossley called "Shocks, Stocks, and Socks." They find that when people are unemployed, they save money in a logical way by not buying "small durables" such as socks and, indeed, clothes in general. In the short term, people get by and save about 15 percent of their household budget. When they find a new job, they replace the tired old socks.

Bad news for Gold Toe, good news for sellers of needles and thread.
.

Labels: ,

0 Comments:

Post a Comment

<< Home