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Consumer Spending to Remain Restrained in the U.S.


Thursday, March 11th, 2010

The U.S. economy will take a lot longer to recover than is trying to be spun by the government and mainstream media, as consumer spending will remain restrained for some time to come as household wealth in the United States continue to grow at a very slow pace.

Some economists admit we are still a long way from economic recovery in the U.S. based on consumer spending remaining down, as they continue to focus on increasing savings and paying down their debt.

It's hard to find economists who want to be taken seriously any longer who will assert we're in a recovery. Most are saying we're in the very early stages of recovery, and there is a long way to go before things return to pre-recession levels.

According to the Federal Reserve’s Flow of Funds report released today, household wealth increased $5.65 trillion over the last nine month of 2009, supposedly recovering almost a third of the losses incurred over the seven quarters before that, which amounted to $17.5 trillion.

I'm extremely skeptical of these numbers, and doubt they will hold up under close scrutiny. Most of that wealth is measured by the value of homes, and it's doubtful we've already gained back about 30 percent of the loss in home values.

Another problem I have with the report is the period of time it mentioned. How many times do you hear the time-frame of nine months being the metric used in data? That raises a flag as to they may have used the most favorable data to release in the report. Again, we will see soon enough about that.

The increase in net worth is probably a more reliable and accurate figure concerning households, and that increased by $700 billion to $54.2 trillion.

Consumers are largely ignoring this type of data, as for the first time since borrowing has been tracked, it decreased in 2009, dropping by 1.7 percent. Consumer debt also fell, confirming what I mentioned about people paying down debt rather than taking more out.

The bottom line with these figures, is consumers aren't spending whatever increasing capital they have, they're building up some savings to protect themselves from possible other economic problems, and paying down debt to better prepare themselves for the future.

Either way you look at it, that will keep the so-called recovery from taking hold, and will keep the American economy struggling for years into the future.

It's possible that it could be a decade or more before things return to levels before the recession, and that's probably a positive outlook. A number of economists are doubtful we'll ever return to those levels.



Article by Gary B

The views expressed are the subjective opinion of the article's author and not of FinancialAdvisory.com



Tags: consumer borrowing , consumer spending , economic recovery , us household wealth