Black Friday 2011: Consumers aren't lacking in confidence. They lack cash.

Black Friday 2011 deals are here but economists say consumers are hesitant. The problem isn't psychological; it's financial. Seventy percent of the economy depends on consumer spending, but 80 percent of families are experiencing declining wages. Raising the minimum wage would help.

Opinion

Yet again, “Black Friday” is upon us, and those who monitor the pulse of American consumer spending note that we consumers seem hesitant, even two years into the economic recovery. According to their diagnosis, we continue to suffer a collective timidity; a “crisis of confidence” that threatens to become a self-fulfilling prophecy. Gutless consumers are the problem.

We fear European debt, they say, or the United States deficit. It’s the housing crisis, and household “deleveraging,” which is economist-speak for paying off debt. Some diagnose underlying trepidation about the failure of the congressional Super Committee.

Economists seem to relish coming up with complicated analyses for the problem, but the explanation is actually much simpler. Yes, much of economics is psychology, but in this case, many of us who are not out there spending suffer from a simple ability to do math, realizing that at our current wages, our pockets are empty.

During the Great Recession, median household income dropped by 3.2 percent, but during the “recovery” it has decreased by 6.7 percent. The recession may technically be over, but Americans’ personal financial crises remain all too real. While there have been some small positive month-to-month improvements in disposable income through 2011, overall levels have declined to those of early 2010.

Federal data reveal that between October of 2010 and October of 2011, real average weekly earnings fell by almost 2 percent, even as workers collectively put in more hours. The problem is that 70 percent of the economy depends on consumer spending, but 80 percent of families are experiencing declining wages. We aren’t suffering from some mass hysteria or lack of confidence; we’re broke.

Per person demand for domestically produced goods and services remains 7 percent lower than before the recession, 8.5 percent lower than what we’d see under normal growth. Consumer spending data from the Bureau of Labor Statistics reveals that lower income families are pinching their pennies.

Since 2006 families with incomes of about $10,000 have cut their spending on fresh food, clothing, household goods, and transportation dramatically. Families bringing in closer to $30,000 have cut back too, and not just on luxuries: 25 percent less spent on beef, 23 percent less on meals away from home, 48 percent less on sheets and towels for their homes, and their young children are going to school with as much as 33 percent fewer new clothes.

Many of these families just don’t have the financial stability to handle holiday shopping this year.

That has a ripple effect, which fuels a vicious cycle. A Wall Street Journal survey of economists showed that 65 percent cited lack of demand as the primary impediment to increased hiring.

An October survey of small businesspeople found that 28 percent of owners reported that poor sales is still their top business problem, and nearly a fourth of respondents didn’t see the situation improving in the next six months. No demand means businesses don’t hire; fewer jobs and paychecks lead to less consumer demand.

The solution is clear (if broad). We need to slow foreclosures and restore the value of our houses, create jobs to re-employ the 24 million people who are currently un- and under-employed, and allow our young people to attain education without mortgaging their futures.

Those are tall orders. Fortunately, we can also implement some quicker reforms to put money into our pockets and trigger discretionary consumer spending.

Big corporations are sitting on mountains of cash, and during the economic recovery nearly 90 percent of growth has gone into profits rather than wages. Workers need some wage increases. The US could start by raising the minimum wage, the inflation-adjusted value of which is now more than three dollars lower than it was in 1968.

In numerous studies, researchers have countered the argument that a higher minimum wage leads to job loss. Cities and states with higher minimum wages adjacent to those that continue to squeeze workers show no evidence of lower job rates. In fact, studies of states with higher minimum wages have found that employment in small businesses actually grew faster than in states that leave workers struggling.

Another step: On December 31st the federal Emergency Unemployment Compensation Program is set to expire, threatening to push millions of unemployed people into further financial stress and trigger as much as a 1 percent fall in US economic growth.

Low consumer confidence can affect the entire economy. But it is insulting to those who have not seen the “recovery” economists declare to suggest it is somehow psychosomatic. Before working people in this country can dash out to the mall to do holiday shopping on “Black Friday” they need not just a boost in confidence but in real wages.

Anastasia Christman is a senior policy analyst at the National Employment Law Project.