American Consumers Aren't Spending, Or Borrowing

The American consumer appears to have gotten religion. Consider these two data points.

The second TALF auction closed today with a measly $3 billion of participation by the Fed. It’s not that the program isn’t working — investor demand for the securities is strong — there just isn’t that much consumer credit out there to securitize.

That brings us to the other data point. The Fed announced today that consumer credit outstanding decreased at a rate of 3.5% in February. Revolving credit (credit cards and home equity lines) decreased at an annual rate of 9.75% while non-revolving credit (auto loans, student loans) increased 0.25%. The consumer isn’t borrowing.

It’s probably a mistake to count out the American consumer but if they have turned over a new leaf, what does that do to the government's plans to goose the recovery through consumer spending?

More: here and here

Comments

[Hillsfar:]

Tom Lindmark wrote: "It’s probably a mistake to count out the American consumer but if they have turned over a new leaf, what does that do to the government's plans to goose the recovery through consumer spending?"

Well, if deflation makes people save because their dollars will be worth more today, and inflation makes people spend because their dollars will be worth less tomorrow...

...I think you know your answer.

Apr 08 01:40 AM

[epeon:]

The answer is that the government wants to reflate the economy. And, guess what, that pushes people into higher tax brackets and funding more government. Oooooooo, you think a democrat can resist this?

Apr 08 09:12 AM

[long_on_oil:]

The American consumer is seeing their friends and neighbors lose their jobs and they are scared to death. The American thing to do now is to listen to Dave Ramsey, pay down debt and make sure you have enough in savings to weather a 3 month loss of job.
Eventually the old autos will wear out, people will have their credit cards paid down to a comfortable level and the fear of spending will subside and that is when the recovery will begin.
In the mean time the Obama administration will seize upon the opportunity to expand government control in every aspect of our lives, all in the name of getting us out of the recession.

Apr 08 10:23 PM

[Teutonic Kn...:]

What has been happening is the following most likely scenario.

Middle Class Americans were awed by their precipitous 401(k) drop as much to six-figure levels. To make up for this loss, they forgo buying a new car or SUV (~$35K), cancel that annual family trip to the exotic tropical resort (~$10K), and send their kid to the Public Ivy vice the Private (~$100K), for a total savings of ~ $150K, roughly equivalent to that book-value (or most likely for real) loss.

Apr 08 10:58 PM

[j_remington:]

When your retirement account or child's college fund gets cut in half YOU end up spending less. And if your need for funds from these accounts are in the next few years YOU will be forced to stop spending.

The consumer is strapped. The government may prop up spending for a quarter or two.

Apr 09 06:11 PM