Two Spending Categories Are Especially Vulnerable

Arguably, one of the closest parallels to recent events is the Great Depression. Given that, I thought it might be interesting to highlight some statistical data from the era (which I got from http://www.greatdepressionsbook.com/datasets/USData.xls).

While most people are aware that the economy went in to a tailspin from 1929 - 1933, with real (i.e., inflation-adjusted) gross national product (GNP) falling by just over a third, they might not be aware of the fact that two sub-components actually fared far worse.

Non-residential investment, which includes spending on buildings, machinery, and equipment used for commercial or industrial purposes, was hit the hardest. It fell by 75 percent over the four-year span.

The second worst performing GNP sub-component measures the consumption of durable goods, which includes cars, appliances, furniture and other items that typically last longer than a year. By 1933, this sub-component had shrunk by more than half.

Essentially, the categories that bore the brunt of the pain were those where the unit costs tended to be high, which depended to some great extent on buyers' willingness and ability to take on credit, and which required some measure of certainty about future economic conditions.

Seeing as all of these aspects appear to be in play right now, I would expect that business investment and spending on durable goods will experience in the period ahead a slump as precarious as the one that occurred 80 years ago.

Comments

[ron]

Easy credit does have a nasty hangover, excess manufacturing capacity,overproduction,high consumer debt to name a few.

[roger]

Makes sense,it sounds like a logical sequence of events,
however the outcome will be very different than 1929 ,more
like 1873 if you know what I mean.

[The Coming Depression]

According to this article the US TREASURY COLLAPSE IS IMMINENT!!! http://www.thecomingdepression.blogspot.com

[Ted Murphy]

Nothing that $1 t in new infrastructure spending can't fix.