SORRY, WORLD, U.S. CONSUMERS CAN'T SAVE YOU NOW / THE WALL STREET JOURNAL

May 15, 2013, 5:35 PM ET

Sorry, World, U.S. Consumers Can’t Save You

By Kathleen Madigan

To the consternation of U.S. manufacturers and probably Federal Reserve officials, American consumers are being asked — once again — to be Shoppers to the World.

The recent reports from retailers show consumers started the second quarter in a better spending mood than economists expected. Falling gasoline prices are freeing up cash to be spent elsewhere while rising home and equity values are making many households feel wealthier.

U.S. factories, however, aren’t benefiting much from consumers’ resilience. The Fed reported Wednesday that manufacturing output slid for the second straight month in April. The output of consumer goods was up 2.4% over the past year. Meanwhile after adjusting for negligible goods inflation, April real retail sales excluding restaurants were up about 3.5%.

Imports are making up some of the gap between domestic demand and supply, one consequence of economic policies pursued around the world.

Of course, global policy makers don’t come out and say, “We want U.S. households to buy more of what we make.” But the recent policy decisions should have that result. After all, the U.S. consumer sector has been a economic powerhouse in the past.

The quantitative easing in Japan is damping the yen, which will help the nation’s exporters. On Tuesday, the U.S. Labor Department said import prices from Japan fell 0.6% in April, the largest monthly drop since September 2008, and Labor noted the three-month decline in Japanese import prices pretty much matched the drop in the yen against the dollar.

For the Fed, a rising import share of U.S. spending will undercut the central bank’s two goals of lifting inflation closer to 2% and creating more jobs.

That’s because falling import prices raise the risk of disinflation. In addition, increased imports will subtract from economic growth, and cuts to factory output in the U.S. will lead to less labor demand. Note that factory payrolls were flat in April, and the average manufacturing work week shrank by six minutes.

In order to increase spending, consumers have been saving less to offset the money lost when tax rates rose this year. That strategy is unsustainable. Unless job and wage growth pick up, U.S. consumers don’t have the financial heft to save the global economy.

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