July 9, 2009
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News: Gov't Report; Consumers Spending Less
Here's a pleasant switch, a recent government report indicates that consumers are using credit cards less and saving more. Some experts welcome the news; however, others believe the trend will do more to harm the U.S. economy since nearly 70% of the gross domestic product is derived from consumer consumption. The report indicated that credit card use is not the only credit declining; consumers have also slowed down in seeking out other forms of credit such as auto and personal loans. According to experts, the downward trend is not likely to end soon as credit card consumers continue to tighten up their belts in the wake of a recession and rising unemployment.
During the 1970's and 80's, consumers were saving nearly 10%. In recent years, the savings rate has dropped significantly to as low as 1% in 2005. However, personal savings have skyrocketed to 6.9% in May, the highest rate in years. The rate increase is most likely due to the hard times that have hit the economy over the past two years. With the recession came the loss of over 6.5 million jobs, home values plunging, and the credit card crisis. Americans are fearful of losing their jobs and taking measures to prepare themselves by socking every dollar possible into savings and relying less on credit cards. Consumers are not spending on those high ticket items like automobiles and retail sales were down nearly 4.6% in May. Furthermore, statistics say consumers are also spending more at discount retailers like Wal-Mart and Dollar stores.
The government report also indicated that new credit card accounts and other revolving type loan balances fell 3.7% in May. Experts say this is a reflection of a weak economy and lower credit availability. Banks have slashed credit limits and are less willing to extend credit as consumers struggle to meet the increasing demands of daily survival.