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Consumers Trim Spending in New Sign of Economic Downturn

New data show that consumer spending fell 3.1 percent in the third quarter, its sharpest drop in 28 years. New York Times columnist David Leonhardt examines the latest numbers.

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  • JIM LEHRER:

    Those new signs that a recession is underway, Jeffrey Brown has our economy update.

  • JEFFREY BROWN:

    "As the consumer goes, so goes the economy." That was true in the good times, and now, as the consumer goes not well at all, it is a clear indication that bad times are indeed upon us.

    With me to go over today's numbers is New York Times economics columnist David Leonhardt.

    Welcome.

  • DAVID LEONHARDT, New York Times:

    Thank you.

  • JEFFREY BROWN:

    You wrote today that the longest American shopping spree on record is over.

  • DAVID LEONHARDT:

    Yes, it is. I mean, in many ways, today's report was the end of an era. Dating all the way back to the early '90s, consumers have increased their spending every single quarter.

    They did it through the recession of 2001. They did it even as incomes were not growing very quickly during this recent expansion. And they did it in many ways by taking out more debt, and that debt is behind a lot of this housing crisis.

  • JEFFREY BROWN:

    That propped us up — that propped us up over the last few years, is that right?

  • DAVID LEONHARDT:

    That's right. That's right. In some ways, you can think about it as we were stealing from future consumption over the past decade and now we pay the price for that.

    Some forms of debt are great. You can go to college; you can buy a car. But some forms are less good.

    And so what we now see is a very sharp pullback by the consumer. As Jim mentioned, it was the biggest decline in consumer spending in almost 30 years. And it's not clear exactly when that's going to end.

  • JEFFREY BROWN:

    And that helped pull, of course, the whole economy down. And now we have the drop in GDP. What else can you read out of today's numbers? There were also jobless claims.

  • DAVID LEONHARDT:

    That's right. So far, what this story has really been, it's been about the financial crisis, dating all the way back to last August, more than a year now.

    I think the story is starting to shift a little bit. I think it's going to shift from the financial crisis — assuming that that crisis doesn't get worse — to, really, the household sector.

    And we're going to see increasing job cuts, and we're going to see incomes failing to keep pace with inflation. And that jobs report that you mentioned today is weekly jobless claims. They're very high. They're really at a recession level.