Saving & Spending 2009 – You Win Some, You Lose Some

Monday, February 1, 2010, 9:32 AM | Leave Comment

Consumer spending rose slightly less than expected in December as households opted to save extra cash, lifting savings to a six-month high, a Commerce Department report showed on Monday. It said consumer spending rose 0.2 percent after increasing by an upwardly revised 0.7 percent in November. For the whole of 2009, spending fell 0.4 percent, the largest drop since 1938. For the whole of 2009, savings rose to a record $502.7 billion.

The economy grew at a 5.7 percent annual pace in the fourth quarter, its fastest rise in six years. The report further cites the reason for it – the economy was driven by a sharp slowdown in the rate at which businesses reduced stocks of unsold goods. Consumer spending slowed to a rate of 2 percent after rising 2.8 percent in the July-September period.

The way I see it, it’s a catch 22
No matter how you slice it, when the consumer spending falls, it obviously means consumer saving is up. That’s not good for the U.S. economy as a whole. The economy runs on consumer spending not saving. Boosting consumer spending is critical to putting the economy on a sustainable recovery path, but a 10 percent unemployment rate is pressuring households to hold the extra non-essential spending. In today’s economy, something less flashy will do just fine.

In a Nutshell
You win some, you lose some. However, the consumers and the economy as a whole never win. When personal saving is up, it’s a bad omen for the retailers. Some experts say any modern economy, especially that of the United States, is two-thirds dependent on consumer spending. That’s a huge dependency. [WOW again!]

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