US spending spree may soon fizzle. Rising debt and falling savings rate expected to squeeze people's budgets

By , Staff writer of The Christian Science Monitor

Americans have gone on a spending binge, boosting their debts and slashing their savings rate. But the spending spree is expected to end soon. Economists say consumers will look at their growing debts and shrinking growth in savings and decide to close their wallets for awhile.

Consumers have spent so much money and have borrowed money to such an extent that in coming months they will have fewer resources to draw on, so spending will fall off, says Lea Tyler, an economist at Chase Econometrics.

``Consumers will not be pulling up the economy almost singlehandedly anymore,'' adds Robert Ortner, chief economist at the Commerce Department.

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Normally, a slowdown in consumer buying could undercut economic growth: Individual spending accounts for two thirds of the gross national product (GNP), which measures the value of goods and services produced in the economy.

In addition, a smaller domestic saving pool means that the US government is forced to go overseas for the bulk of the money it borrows to cover the budget deficit. So rather than having the debt be owed to US citizens, more of the interest payments on the debt will go outside the country. That will tend to put a drag on the overall standard of living in the US.

But for a variety of technical reasons, the newest flurry of statistics on spending and savings may overstate how much consumers have cut savings and boosted debt. So consumers may not have to work as hard to bring their savings back to more historic levels as it would first appear, analysts say.

``There is no question over the direction'' of consumer spending, which clearly will decline, says John Hammond, a vice-president at Data Resources Inc. ``The argument is over the magnitude. Our argument is that it will not slow things down dramatically.''

DRI expects the economy to grow at a 2.3 percent pace in the fourth quarter of 1985 vs. 3.3 percent in the third quarter. The forecasting company attributes most of the projected slowdown to a drop in auto sales. The car sales Detroit won in August and September with low-interest auto loans were borrowed from October and November, Mr. Hammond explains.

``I don't accept the premise that the fourth quarter will be that low because of the rebuilding of savings,'' adds Ken Goldstein, an economist at the Conference Board, a business research group in New York.

Nevertheless, the apparent change in individual savings has been dramatic. In September, Americans saved a measly 1.9 percent of their after-tax income. That is the lowest savings rate since the federal government started keeping records on savings in 1959. By comparison, in 1984 the savings rate was 6.1 percent and in 1975 it was 8.6 percent.

Savings fell as consumers increased spending faster than their incomes rose. Personal income rose only 0.3 percent in September while consumer spending surged 1.2 percent. The spending was fueled by discount auto loans, which boosted auto sales.

In addition to cutting savings, consumers also have boosted their debts. Outstanding consumer installment credit is now at a record 19 percent of disposable income, topping the old record of 17.8 percent set in 1978.

Still, the consumer's financial situation is not as strained as it might appear.

The government calculates savings as the difference between what people earn and what they spend. But a good deal of consumer spending in August and September was for new cars, which are purchased on credit rather than with cash. Thus the cut in dollars available to be saved was overstated. Mr. Hammond estimates consumers actually saved 4 to 5 percent of their income in September.

The figures on consumer debt also are distorted, experts say. While installment debt is at record levels, the burden is not as high as it might appear. For one thing, the government tracks the total amount of debt and compares it to disposable income. But consumers have been stretching auto and other loans over longer periods of time, so the monthly payments have tended to become smaller, and presumably more affordable.

Then too, the figures do not adjust for the fact that many credit-card holders pay off their balance at the end of each month. CHART: US savings rate (As a percent of disposable personal income) 1975 8.6 percent '76 6.9 percent '77 5.9 percent '78 6.1 percent '79 5.9 percent '80 6.0 percent '81 6.7 percent '82 6.2 percent '83 5.0 percent '84 6.1 percent '85 1st q: 4.5 percent 2nd q: 5.1 percent 3rd q: 2.9 percent Jul 85 3.5 percent Aug 85 2.9 percent Sep 85 1.9 percent Source: US Commerce Department

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