The falloff in short-term portfolio assets is less meaningful as families reach $10 million to $15 million in net worth reaching higher levels of affluence begin to build long-term portfolios. Even in that range, however, medical expenses and inflation can bring diminished expectations of retirement. A person with $20 million is going to sweat medical expenses as much as a person with $1 million or much less. But even at what seems to be tremendous levels of wealth, there is still anxiety.

And while lower gasoline prices are a relief to consumers, the price decline will not be enough to override all the other challenges retailers face this holiday season. Wal-Mart has already taken a strong stand on toy pricing in an attempt to maintain its position. Overall, retail advertising through the holidays will have a strong emphasis on value. Retailers should take a hard look at every aspect of their operations.

If a concept or location is not working, the current climate does not offer enough of a cushion to keep addressing the problem until it can be turned around for a payoff. You have to cut your losses and focus on the core business and make sure that is performing well.

Scott Hoyt, senior director of consumer economics at Moody’s Economy.com, says consumer spending this holiday season will be shaped by two forces. Faced with declining home prices, job worries and credit card debt, consumers simply are in no position to raise spending levels. In addition, they have lost confidence in the economic future, making them especially wary of spending. Confidence is down in the doldrums. So not only will consumers struggle to find the wherewithal to spend, it is not at all clear that they want to.

While consumer spending and debt levels had reached unsustainable levels and were bound to come down, the abrupt and painful collapse in housing prices and dramatic stock market losses have brutalised consumer psyches. As a result, the slowdown may be harsher than it would have been had the bubble deflated more gradually.

Consumer spending had been growing faster than GDP for decades, and we were to the point where it could not continue. The hope was that you could make a gradual transition to increased saving. If we had not had the housing bubble and the financial panic, presumably we could have done the transition more smoothly. Despite the severity of the current downturn, the forecasting is a turnaround beginning in the middle of 2009 with a peak in unemployment in early 2010. Home prices are expected to bottom in the summer of 2009, but not begin to increase until the second half of 2010.

A full out economic crash is not in base forecast. If the government were to prove unable to stabilise financial markets, that risk can not be ruled out, but if you look back historically, when governments recognise a major problem and actively combat it, they usually succeed.

It is expected consumers to face several years of retrenchment, but other elements of the economy, including business investment, trade, and energy productivity and investment will step forward to replace consumers in driving future growth. It is projected that it will have a recovery next year, probably late next year, but we are going to have a very different economy. It will be a consumer driven economy for 25 years. This will lead to an export and business-led economy.
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