Can Americans save money – and the economy?
US consumers want to reduce their debt, but the economy's recovery depends on their confident spending.
Americans are eager to see the economy move into higher gear in 2010, but their personal financial struggles appear likely to temper a recovery.Skip to next paragraph
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Households are in financial-repair mode. They are trying to rebuild savings accounts, pay down debts, or get by until the job market brings new opportunities.
In many ways, this puts the economy in uncharted waters. Americans have never faced the challenge of bouncing back from such a deep recession while retaining such a high level of debt.
Can households get back on sounder financial footing while providing the fuel of consumer spending that typically drives an economic expansion?
Many forecasters offer a “yes, but” answer. Paring back debt burdens doesn’t preclude a rise in consumer spending, they say. But they acknowledge they could be wrong. Even if they’re right, recovery may be tepid, without quick relief in the jobless rate. And the real test of consumer staying power may come later this year as government stimulus programs begin to fade.
"There’s not a lot of gas in the consumer tank," says Brian Bethune, an economist at IHS Global Insight in Lexington, Mass. "In a process of deleveraging, the consumer is just going to be a very elusive individual to track down."
Elusive or not, that individual will be someone to watch as a barometer of recovery.
Here in the working-class city of Revere, Mass., the end of the holiday season hasn’t brought shoppers to a halt. But in this community north of Boston, belt-tightening is a common refrain alongside cautious optimism.
"I live very frugally," says Glen Corriveau, who's looking for work and getting by with a Veterans Affairs stipend and by subletting a bedroom in his apartment. Like many Americans, he blends a can-do spirit with concern that recovery will take time.
"I see us becoming a subterranean society," with many people so discouraged they’ve stopped looking for jobs, he says. He figures a lot of the jobs he’s held before won’t come back. Yet he says he’s hopeful about finding work.
Alan Cohen, another Revere resident, is employed but is also watching his pennies – avoiding debt by owning no credit cards. As a teacher of English as a second language, he has joined America’s growing ranks of freelance or contract workers.
Consumer spending is the 'engine' that has helped to pull America out of past recessions, but unusually heavy debt--and consumer wariness--may make the going slow this time.