Spending Sputters as Prices Pinch Consumers
Economic growth is largely dependent on consumer spending. With gas prices over $3 a gallon and $100 billion in losses from the devastation of the hurricane-ridden Gulf coast, consumer spending dropped by 1 percent in August, the biggest decline since the fall of 2001.
Additionally, the personal saving rate of Americans in August was a negative at 0.7 percent. While that was higher than July’ s all-time low of negative 1.1 percent, it’s not an improvement when you consider that it means Americans are spending all their after-tax income and then some. Many are dipping into monies that had previously been ear-marked for college tuition, retirement, and/or emergency funds. Now that money is being used to cover the increased costs of commuting and goods. Unfortunately, it’s only the beginning.
Some of the economic reports read as if Americans are dipping into their savings just because they are spend-happy. The truth is, for those that have savings, increased costs of gas, goods and healthcare coupled with a fairly stagnant wages, tapping those funds provides the only alternative for meeting daily needs.
For those who have no savings to tap, the increased cost of gas and day-to-day necessities, like food and medicine, have had to utilize additional credit. Those with no credit are fairing the worse. While the Fed worries about inflation, the average citizen is worried about how to pay the ever-increasing bills. A recession is appearing on the horizon.
Americans need realistic solutions to these financial burdens. Increased short-term interest rates are compounding the problems of the already strapped consumer, but even if rates were dropped, giving consumers the ability to further deepen their credit card debt won’t help on a long-term basis.
Whether or not we are facing a major recession, it will be necessary for all Americans to make some major adjustments in their everyday activities. The rising cost-of-living over the coming winter months will put an additional burden on the already strained budgets of most. Finding ways to reduce and/or eliminate unnecessary expenses, becoming more economical in day-to-day activities and conserving financial resources is the only way that we can survive successfully.
Consider your habits, your activities, your debt, your income and your savings. Think about what you really need versus what you want. As a society, we are often portrayed as being to addicted to the acquisition of “stuff” and that’s true to a large degree. As time goes on, it will increasingly necessary for each individual to evaluate what’s really needed. Taking any steps necessary to protect your financial security is the best defense in uncertain, volatile economic conditions.