Consumers hit the brakes on spending

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Strong evidence is emerging that consumer spending, a bulwark against recession over the last year even as energy prices surged and the housing market sputtered, has begun to slow sharply at every level of the US economy, from the working class to the wealthy.

The abrupt pullback raises the possibility that the country may be experiencing a rare decline in personal consumption, not just a slower rate of growth. Such a decline would be the first since 1991, and it would almost certainly push the entire economy into a recession in the middle of an election year.

There are signs that beginning in December, Americans cut back significantly on personal consumption, which accounts for 70% of the economy. A raft of consumer companies—high-end stores like Nordstrom and Tiffany, and middle-of-the-road ones like Target and JC Penney—reported a slowdown in growth, and in several cases an outright drop in business.

American Express said that starting in December the growth in the rate of spending by its 52 million cardholders, a generally affluent group of consumers, fell 3% points from 13% to 10%, the first such slowdown since the 2001 recession.

And consumer confidence, an important barometer of economic health, has plunged. Andrew Kohut, president of the Pew Research Centre, says consumer satisfaction with the economy has reached a 15-year low, according to a poll. Even wealthier consumers, who were seen as invulnerable to rising gasoline prices and falling home values, are feeling the squeeze.