NCPA - National Center for Policy Analysis

All Hail The American Consumer

August 20, 2001

One question alone seems to dominate the minds of economic forecasters: "Will Americans continue to spend?" With business spending, the stock market and major world economies in retreat, American consumers seem to be the primary factor holding back a nasty recession.

And economists are nervous that record-high debt levels will force Americans to curtail their spending.

  • Household debt now stands at a record $7.4 trillion -- almost double what it was at the beginning of the 1990s.
  • Debt service as a percentage of income is close to 14.5 percent -- another record.
  • Household net worth has fallen 10 percent in the past 12 months, but is still close to an all-time high -- some $41 trillion, 20 percent above the historic average.
  • Credit card delinquencies are at their highest level in almost nine years -- and personal bankruptcy filings are rising.

The binge may be reaching its limits. In June, U.S. consumer borrowing fell for the first time in three-and-a-half years. The savings rate has also leveled off after years of decline.

Yet while total household debt is equal to total current household income, consumers' overall assets are worth 6.5 times as much as their debt.

So as the income tax rebates flow from Washington, economists hope consumers will use part of that money to pay of debt and improve their financial standing. But they also have their fingers crossed that part of that money will be spent.

Source: Anna Bernasek, "Honey, Can We Afford It?" Fortune, September 3, 2001.


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