Turmoil May Make Americans Savers, Worsening `Nasty’ Recession

Rich Miller
Bloomberg
Monday, Oct 20, 2008

The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not.

With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending.

That is bad news for companies catering to them, which will have to retrench as well. Detroit automakers may need to slash costs and merge as Americans hold onto their cars longer. Shopping malls might be forced to shut as retail traffic trails off. Hotels may have to shelve expansion plans as vacationers become stingier with their dollars.

The big concern is that households, spooked by the turmoil in financial markets, will cut back rapidly and sharply, plunging companies into bankruptcy and deepening a recession that many economists say has already begun.

(Article continues below)

“If we did have a quick cut in spending, it could turn a pretty nasty recession into possibly the worst downturn we’ve seen in the postwar period,” says Michael Feroli, a former Federal Reserve official now at JPMorgan Chase & Co. in New York. Even without a collapse of consumer spending, Feroli expects the economy to contract by 2 percent in both this quarter and the next.

There are signs that consumer spending is already giving way. U.S. retail sales fell in September for the third straight month, the longest slump since the government began keeping records in 1992. And consumer confidence as measured by the Reuters/University of Michigan index fell by the most on record this month. Fed Chairman Ben S. Bernanke will give the central bank’s latest assessment of the risks to the economy when he testifies before the House Budget Committee today.

`A Quantum Downward Shift’

“We are going through a quantum downward shift in consumer spending,” says Allen Sinai, chief economist at Decision Economics in New York. “Any industry that is tied to the consumer will have to downsize and consolidate.”

Full article here

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5 Responses to “Turmoil May Make Americans Savers, Worsening `Nasty’ Recession”

johnny 5 Says:
October 20th, 2008 at 2:10 pm
And so, frankly, after that, there’s hardly a single person in this country who doesn’t know about child labour or sweatshops or STARVATION wages.
Some business guy STEALS a Bank, he’s a big SUCCESS story. Face in all the magazines. Some other guy steals the magazine and he’s busted.
When the Chinese start complaining about BushCo. you know we got some real problems. I guess when your national debt is reliant upon the Communist Chinese for support, we might as well start learning a new language…
China has previously threatened to liquidate its vast holding of US treasuries, amounting to $1.33 trillion, if Washington imposes trade sanctions
http://www.youtube.com/watch?v=XofhugorirI
We Shall Overcome
john Says:
October 20th, 2008 at 5:40 pm
Most of the expenditures of the average american is going to pay for just involves their overhead. Everything is being grabbed by the government. When everyone is reliant upon the Govt. for transportation, communication, and food, then the cost of living will be whatever amount decided upon by the Govt. Ive started watching Hannibal Lecter movies again.
transduction Says:
October 20th, 2008 at 6:50 pm
The difference between people like me and the average American is that for me saving money is a way of life, I’m very frugal regardless of whether the economy is good or not. Anyone who decides to wait until we enter an economic crisis to understand the importance of saving and avoiding debt is an idiot who will never build wealth.
Robert Says:
October 21st, 2008 at 6:25 am
But according to Perino we are not is a recession. Don’t you trust Republicans and Democrats?

And isn’t that why the U.S. Government sells savings bonds?
Cherri Says:
October 21st, 2008 at 7:51 am
The problem is we have been accused of being “big spenders” for years. But, the banking system worked against average the Joe trying to saving money. Savings accounts pay out very little in interest and then the US Government taxes the heck out of it. Then when we attempted the 401K route we ended up losing 40% of it over the past couple of months. Then when we attempted to save money via IRAs but the IRS put so many rules and regulations on it that it made it difficult. Then the price of gas and regular consumer goods increased dramatically and then we didn’t have any of our paycheck left over TO save. The deal is saving money works for the George Soros’ of the world….not the Joe Citizen.