NEWS AND COMMENTARY
July 12, 2001
Consumers Put on the Brakes
Wall Street was hoping the economy would do a 180-degree turnaround last month. Instead, it was consumers who did an about face, and, in the process, practically wiped out the economy's chances at a speedy recovery.
June was the second month in a row in which retail sales have flopped. Consumers have pared back their spending, choosing to shop at Wal-Mart rather than the local mall for necessities. It is abundantly clear that consumers are feeling the pressure of layoffs, stock market volatility, and an ever-growing debt burden.
Though Wall Street will undoubtedly blame consumers for not holding up their end of the economy, we can see why they're buckling under. Since January, companies have cut over 600,000 jobs. (For a list of the most recent companies to ax employees, check out MSNBC's "Layoff List" at http://www.msnbc.com/news/555872.asp.) And companies aren't just temporarily laying off employees, some have gone belly up altogether. Just this week, Internet company WebVan closed its doors, shutting out 2,000 workers.
Plus, consumers have seen their 401(k) portfolios plummet in value - creating a "reverse wealth effect". And those credit card bills that didn't seem so high in comparison to bulging 401(k) statements a year ago, are suddenly too much to handle. This won't be the last month that consumers rein in their spending. And don't expect the economy to bounce back either.
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