Consumers are acting too responsibly

Why is the economy faltering?  Robert Samuelson blames consumers, who are saving more and paying down their debt instead of spending:

“Consumers are deleveraging (reducing debt) . . . and rebuilding saving faster than expected,” writes economist Richard Berner of Morgan Stanley. In 2007, the personal savings rate (the share of after-tax income devoted to saving) was 2 percent. Now it’s about 6 percent. Temporarily, this hurts buying. Declines in consumer spending in 2008 and 2009 were the first back-to-back annual drops since the 1930s. Since World War II, annual consumption spending had fallen only twice (1974 and 1980). . . .

Household debt has already dropped $800 billion from its peak of $11.7 trillion, estimates economist Mark Zandi of Moody’s Analytics. The Federal Reserve reports that debt service — the share of income going to interest and principal payment — has decreased from almost 14 percent in early 2008 to about 12.5 percent, the lowest since 2000.

via Robert J. Samuelson – The saving mentality is hurting the economy’s recovery.

And what has economists in a panic is the prospect of people continuing these good habits!


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