US households cut debt to 6 year low

US austerity Mar11.pngThe US economy is worth $15trn, 24% of the global economy.

Domestic consumption, accounts for 70% of the US total. This means the US consumer represents 17% of the global economy.

China’s economy, although the 2nd largest in the world, is just $5.7trn. And its domestic consumption is much smaller, representing only 3% of the global economy.

So changes in US domestic consumption trends really matter to the global chemical industry.

And as the chart from the Wall Street Journal shows, US consumers are no longer so keen to finance their consumption by increasing their debt levels. In fact, total US household debt fell for the second year running in 2010, and is now back to 2004 levels.

Of course, some argue that this means US consumption may now rebound again. But demographics would suggest otherwise:

• US births rose an astonishing 45% during the 1946 – 70 period, compared to the 1921-45 average
• The oldest of these BabyBoomers is now 65 years old, and the median is 53 years old
• Demographers tell us that people in the 55+ age bracket tend to save more and spend less
• And, of course, increasing life expectancy means older people need to save even more

This is quite a different scenario to that which powered demand patterns over the past 20 years. The majority of the BabyBoomers were then in the 25 – 54 age group. This is when people tend to spend more as they marry, settle down, and have children.

Thus the blog continues to believe we are entering a New Normal, where the world can no longer expect the US to act as “the consumer of last resort”. In turn, chemical companies need to consider making major changes to their business and innovation models.

Prof Michael Porter’s Shared Value concept seems increasingly key to understanding how the next wave of global growth will be created.

About Paul Hodges

Paul Hodges is Chairman of International eChem, trusted commercial advisers to the global chemical industry. He also serves as a Global Expert for the World Economic Forum. The aim of this blog is to share ideas about the influences that may shape the chemical industry and the global economy over the next 12 – 18 months. It looks behind today’s headlines, to understand what may happen next in critical areas such as oil prices, China and Emerging Markets, currencies, autos, housing, economic growth and the environment. Please do join me and share your thoughts. Between us, we will hopefully develop useful insights into the key factors that will drive the industry's future performance.

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