The horrific events of 11 September will have profound implications on the American people - and on their consumer behaviour.
One key issue that is likely to determine how quickly the world economy will come out of the present difficulties is how consumers, particularly those in the United States, respond to the shocking terrorist attacks of 11 September. The initial signals are not promising: the US Conference Board's consumer confidence index fell sharply in September to 97.6 from 114.3 in August.
As the largest economy in the world and one of the freest, the United States has been recognised as a land of opportunities, where liquid, large and free markets ensure the efficient allocation and use of resources, efforts are met with just rewards, and potentials are maximised. This status has further been buttressed by a long history of peace - in the sense that the mainland United States has been free of war for well over a hundred years - and more recently by a sustained period of impressive, non-inflationary growth that has been the envy of many in the developed world.
To be sure, there have been profound, and for some, disruptive, changes seen in the United States in the past, but these were mostly the result of opportunities being exploited and potentials being realised, as for example in the case of the advent of information technology. And so, interestingly, change has almost always for the better, for the people as a whole, if not always been for individuals. As a result, the American people embrace change a lot more enthusiastically than do many others, whether they are the people of developed or developing economies. This, I think, is one important reason why the American people as a whole are not really in the habit of saving much. While the savings rates, for example, in the Asian region are well into double digits, and in some cases as high as 30 or 40%, that in the United States has been near zero, and at times negative.
Hong Kong people, for example, save quite a lot of money. Not that opportunities do not present themselves in Hong Kong, or that there are significant factors inhibiting the full play of free market forces (excessive volatility notwithstanding). But simply because we were brought up with an uncertain future. On the economic front, we have never been able to fully determine our own destiny. Being so externally oriented, in the absence of any natural resources, other than the deep harbour, we have to adapt to the external environment in order to survive. And the external environment does change often, somewhat unpredictably, and sometimes profoundly overnight. Our ability to adapt depends also on the existence of a government that is small in terms of its command of economic resources and that eschews the provision of vote-earning free lunches. Consequently, the people of Hong Kong have developed the noble habit of self-reliance through savings. Of course, we also had the political uncertainties, ahead of the resumption of sovereignty over Hong Kong in July 1997, that featured very much in the minds of the people of Hong Kong, to the extent of effecting an upward bias in their propensity to save.
The terrorist attacks on 11 September, on the soil of the United States, and at the heart of the political and financial centres, will have profound implications on the American people that are difficult to fathom at this point of time. While the repercussions unfold in the days, weeks and months to come, there seems little doubt that consumer behaviour, in the short term at least, will be affected. And we are not talking just about people spending more time watching the latest developments on television at the expense of shopping, or the "CNN effect" as some economists are now calling it. There may be more fundamental changes of a long-term nature in consumer behaviour. Although it is probably unlikely that we would ever see the US savings rate moving to double digits in the positive territory, a move towards a significant, single digit figure may be a likely outcome under the circumstances. Greater dependence on domestic savings is, of course, no bad thing for the US economy in the long term, in the financing of its domestic investments. Perhaps there will at least be less of a need to refer constantly to the rather political, but somewhat irksome slogan of a "strong dollar policy", for fear of disrupting the capital inflow that has been sustaining investments. However, an increase in the propensity to save and a decrease in the propensity to consume, coming now, will I fear risk undermining the economic recovery in the United States that we all wish to see. We may have to be a little more patient. And things may get worse before they get better.
Joseph Yam
27 September 2001
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