Professor Nunes writes:
"I agree that the Investment data do not point to a "credit crunch". But then there is consumption (Durables and Non Durables and Services separately). The fall in Durables Consumption is poised to be the worse over the last 5 recessions. Non Dur & Services is also not doing well (comparatively). Some could point to the behavior of Durables and say Credit Crunch on the consumer. More relevant, I think, is the steep drop in Consumer Confidence (influenced strongly by the employment situation. The 1990-91 recession, although short, had a similar effect on Cons Conf and overall consumption flagged. This was not so evident in the other recessions."
I see three possible factors that would reduce consumption:
- wealth effect of (technology components of) the housing crash (Luke Threinen and I estimate this to be about 3 percent)
- substitution effect from labor market distortions (I have not quantified this yet -- but guess maybe 1 percent)
- credit crunch
As long as (1) and (2) are real, evidence on low consumption does not convince me of the existence of a credit crunch. In fact, I were told that the credit crunch were affecting consumption, I'd be surprised that consumption hadn't fallen MORE. For credit crunch impacts, I look to the investment data because they are much less affected by (1) and (2).