June 29, 2001

Consumer Sentiment vs. Consumer Spending

Question: If consumer sentiment does not break down, do you expect consumer spending to remain strong?

Answer: Even if consumer sentiment about the economy remains strong, the high debt burden that Americans have taken on in this easy-credit environment will eventually force them to curb spending. The savings rate is a miserable -0.7%. The average credit card debt per household hit $8,123 in 2000, nearly three times the average amount owed 10 years ago.

The sad fact is that Americans aren't prepared for the wave of layoffs that are still to come. According to outplacement firm Challenger, Gray, and Christmas, 25% of companies it surveyed plan to cut jobs in the next year. Since January, companies have slashed 652,000 jobs.Consumer spending has already begun to buckle under the pressure of these layoffs. As this slowdown continues, consumers will no doubt be forced to rein in spending or face a trip into bankruptcy court.

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