All eyes on the American consumer
One question alone seems to dominate the minds of economic forecasters: "Will Americans continue to spend?" With business spending, the stock market and major world economies in retreat, American consumers seem to be the primary factor holding back a nasty recession. Household debt in the U.S.A. now stands at a record $7.4 trillion almost double what it was at the beginning of the 1990s.
And economists are nervous that record-high debt levels will force Americans to curtail their spending.
Debt service as a percentage of income is close to 14.5 percent another record.
Household net worth has fallen 10 percent in the past 12 months, but is still close to an all-time high some $41 trillion, 20 percent above the historic average.
Credit card delinquencies are at their highest level in almost nine years and personal bankruptcy filings are rising.
The binge may be reaching its limits. In June, U.S. consumer borrowing fell for the first time in three-and-a-half years. The savings rate has also levelled off after years of decline.
Yet while total household debt is equal to total current household income, consumers' overall assets are worth 6.5 times as much as their debt.
So as the income tax rebates flow from Washington, economists hope consumers will use part of that money to pay off debt and improve their financial standing. But they also have their fingers crossed that part of that money will be spent.
Source: Anna Bernasek, Honey, Can We Afford It? Fortune, September 3, 2001.
For more on Consumer Debt http://www.ncpa.org/pd/economy/econ2.html
FMF\28 August 2001
Publish date: 04 September 2001
The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.