The Consumer Is Not Dead.(International Edition; POINT OF VIEW)(consumer behavior)

Byline: Zachary Karabell; Karabell is president of RiverTwice Research

As the equity markets take another huge step down, it's assumed that American consumers are so shell shocked by their loss of wealth in both homes and stocks that they will continue to hoard what little cash they have. Yet the relentless negativity about the state of the American consumer may well be overblown. Consumers didn't begin this crisis, but they may very well end it.

It doesn't seem that way right now. In a spate of polls in recent weeks, somewhere between half and two thirds of all Americans say that they are worried that they will lose their jobs. That fear seems to gain more traction with each passing month, especially with payrolls shrinking as rapidly as they did this month, with 651,000 jobs lost and the unemployment rate spiking to 8.1 percent. And as more people fear for the economic future, they have continued to pare their spending, which has in turn deepened the economic downturn.

The fear is real, but is it merited? For starters, it's worth noting that unemployment figures always lag behind economic recovery. No one knows how many more jobs will be lost, but even the most pessimistic estimates assume unemployment will top out at 10.5 percent. Let's say it gets worse and goes to 12 percent, which would mean about 5 million more jobs lost. It's a big number, but that is out of a workforce of about 155 million people in a country with 300 million people. Even if 5 percent more will lose their jobs, surveys shows that more than 50 percent fear that they will. Clearly there is a wide gap between fear and reality.

How much one worries is subjective. If I told you that there was a 1-in-20 chance of something bad happening to you, would you radically alter your behavior to account for that? That is precisely what is happening, and it is having both short-negative and long-term positive consequences.

The most obvious consequence is that consumers are saving, rapidly. Personal savings jumped from under zero in the middle of 2008 to 3.9 percent in December to 5 percent in January-- almost equal to the 30 year average of 5.6 percent. Critics were quick to point out that some of the increase was due not to frugality but lower tax payments and higher Social Security payments. While there are problems with how the personal-savings rate (not to mention the unemployment rate) is calculated, there's little doubt that people have been socking away money and paying down debt. Outstanding credit-card debt has been decreasing for the past two months at least, and plunging auto sales are partly attributable to the unwillingness ...