Saturday, September 12, 2009

Consumers Reign In Spending

Increasingly more data confirms consumers have significantly changed their spending habits. In the short run this hurts economic growth since consumer spending has accounted for 70% GDP. In the long run, however, higher consumer savings will have a positive impact on the economy.

Earlier this week it was reported that consumer credit outstanding fell at an annualized rate of over 10%. This represents a $21 billion drop consumer credit outstanding.

In addition to consumers paying off more of their outstanding debt with their free cash flow, they are saving more on their income on a percentage basis as well. This was highlighted in an earlier post at EconomPic.

Source: EconomPic

The EconomPic post is interesting to read as it discusses the interplay between savings and investment.

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