U.S. consumers and the businesses that depend on them are bracing for what Lehman Brothers Inc. economists call a “cold, dark and expensive” winter.
A growing number of Wall Street forecasters, including those at Goldman, Sachs & Co. and Merrill Lynch & Co., are pulling back on estimates for consumer spending. They cite a convergence of rising energy prices, falling real wages and new rules taking effect by year-end that will require larger credit-card payments, which threaten to increase delinquencies at a time when a record number of borrowers already are behind on their bills.
“We are hitting the consumer with headwinds that we have not witnessed on record,” says Andrew Pyle, senior economist with Scotia Capital in Toronto.
Goldman, Sachs predicts a 1.5 percent annual rate of increase in consumer spending over the next two quarters, half the pace of the last two years; Merrill Lynch & Co. set its fourth-quarter view closer to 1 percent.
A slowdown threatens not only the U.S. economy – consumer spending accounts for two-thirds of gross domestic product – but the world’s as well: The U.S. imports 18 percent of the world’s goods.
In a report Friday titled “Cold, Dark and Expensive,” Lehman said higher energy prices may cut U.S. gross domestic product growth by half a percentage point in the next two quarters. Lehman estimates Americans will pay $25 billion more this winter to heat their homes.
The true test for the consumer may come in the near future, when their heating bills arrive.
However, some economists say home-equity loans, which are still bolstering Americans’ ability to spend, will help cushion the blow.
