Just when I thought that the American consumer has lost all sense of how to handle money, the New York Times reported yesterday (see article) that spending is down for the sixth month in a row, and that personal savings rates are the highest they have been in six years. Although the lack of spending can be blamed for the recent poor sales numbers from retailers, the news regarding savings rates comes as a stark contrast to the sentiment I was reading as recently as last year. Savings rates were dipping into negative numbers and at their lowest historical levels, and the country’s average credit card debt was at mind-numbing levels.
I can sympathize with the fact that the lack of consumer spending is causing many people to lose their jobs. Unfortunately, when spending is inflated by easy credit to the levels we saw over the last decade, the real money has to catch up at some point. This means that instead of returning to a normal spending level, everyone is now panicking and trying to pay off credit cards and put away money for a very possible rainy day. This results in lower-than-normal spending levels, and a painful reality check for the economy.
Regardless of how bad things will get in the world this year, we can be hopeful that the typical family will end the year with a little less debt and a little more cash, and they will be all the better for it in the long run.
Photo by Peat Bakke