Monday, March 21, 2011

A remarkable shift in consumer spending habits

The NY Fed has an article seeking to answer the question "Have consumers been deleveraging?"

And according to the story, the answer is a dramatic "yes."

Here's a quote:
"Between 2000 and 2007, consumers’ borrowing added an annual average of about $330 billion to the cash they could spend; by 2009, consumers were diverting $150 billion away from potential spending in order to reduce the debts they had built up. This represents a remarkable $480 billion reversal in cash flow in just two years."

That IS a remarkable change in spending habits! The NY Fed is not clear whether this is by consumer choice or by design:
"A remaining issue is whether this deleveraging is a result of borrowers being forced to pay down debt as credit standards tightened, or a more voluntary change in saving behavior. There is evidence on both sides of this question."
 It's probably a little of both, from what I'm seeing. But in the science of economics, there seems a compulsion for the "either, or" scenario.

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