Consumers are acting too responsibly

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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