Hope....
money.cnn.com
credit counseling site Myvesta.org says consumers spend $1.22 for every dollar they earn.
OUCH!
Consumers shying away from debt
After propping up the U.S. economy with borrowing and
spending, consumers are watching their wallets
October 9, 2002: 10:38 AM EDT
By Mark Gongloff, CNN/Money Staff Writer
NEW YORK (CNN/Money) - Ignoring a recession, nearly 1.8
million job cuts and other horrors, U.S. consumers have tirelessly
spent money in the past year, and much of that spending was
fueled by borrowing.
But consumers seem to finally be losing their stomach for debt,
meaning they will likely need to see real economic improvement if
consumer spending growth is to continue with any strength.
The Federal Reserv e said Monday that consumer credit grew in
August at the slowest pace in eight months, expanding by only $4.2
billion, disappointing the consensus expectation that credit would
grow $11.1 billion, according to Briefing.com.
And the Cambridge
Consumer Credit Index, a
private monthly survey of
more than 1,000
households that
measures how consumers
feel about taking on debt,
fell in October and has
been more or less steadily
falling since July.
"This month's [survey]
data indicate that
consumers are trying to
keep their credit usage in
check," said the survey's
chief economist, Allen
Grommet. "It is not
suggesting that
consumers are giving up
on using credit, but that
they are wanting to slow
up and are keeping their
debts from growing
significantly."
That's good news, in the
sense that consumers
needed to slow down
their borrowing anyway -- the American Bankruptcy Institute says
personal bankruptcy filings have risen by 44 percent in the past
decade, while credit counseling site Myvesta.org says consumers
spend $1.22 for every dollar they earn.
Meanwhile, in the midst of an economic downturn, consumers have
been starting to show other signs of the strain of increased debt:
On Sept. 10, the Mortgage Bankers Association (MBA) said the
rate of delinquencies on mortgage loans rose in the second
quarter, while mortgage foreclosures were at a record level;
and
On Sept. 26, the American Bankers Association (ABA) said
delinquency rates on credit cards, auto loans and mobile
homes rose in the second quarter.
"The rise in auto and other consumer loan delinquencies reflects the avalanche of
layoffs over the past year and a half," said ABA chief economist James Chessen.
"Until job growth gains upward momentum, relatively high levels of delinquencies
will remain."
U.S. businesses slashed about 1.8 million jobs
from their payrolls during the recession and
haven't been in any hurry to hire new workers,
leaving the unemployment rate hovering at about
the same level since December.
Delinquency and default trends seemed likely to
continue in the third quarter, when U.S. stock
prices plunged and fears about a potential war in
Iraq grew, discouraging U.S. businesses from
spending money.
Ordinarily during such a downturn, consumers
snap their wallets and pocketbooks shut, saving
up money for the next economic boom. That didn't happen this time, in part
because of a blisteringly hot real-estate market.
Plunging mortgage rates pushed demand
for homes ever higher, making
homeowners feel wealthier and triggering
a refinancing orgy that cut mortgagees'
monthly payments, putting more
spending cash in their pockets and
giving them money to pay off some of
their debt.
This was critical to the broader economy's strength, since consumer spending
fuels about two-thirds of the total U.S. economy, the world's largest.
"The Queen of England mistakenly knighted Alan Greenspan as the saviour of the
global economy," PIMCO bond fund manager Bill Gross said in a note last week.
"She should have instead tapped the originator of the refinancable mortgage."
But, in that same note, the ever-gloomy Gross also raised the question: What
happens when the refi boom ends before the economy gets back on its feet and
businesses start hiring again?
Disaster was the answer, though Gross said he
thought such a scenario was still unlikely -- for
now.
In any event, though it might not happen any time
soon -- applications for refinancing hit a new
record last week, according to the MBA -- the refi
boom will end.
"You've got to ask yourself, will we have another 100-to-150 basis-point decline in
mortgage rates?" asked Anthony Chan, chief economist at Banc One Investment
Advisors, referring to mortgage rates, which averaged 6.01 percent in the week
ending Oct. 4. "I would say that's a stretch, so it's not going to be a reliable source
of funds for consumers -- we'll need to see the economy turning around."
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