US consumers and businesses are embarking on an era of thrift as the recession deepens, saving more money as they cut spending on purchases as varied as sweaters, new homes and office towers.
That was the picture painted by two government reports released on Monday. One showed that Americans cut their spending for a sixth month in December as they worried about losing their jobs and earning less in a deteriorating economy. The personal saving rate in the last three months of last year rose to its highest level in six years.
In another report, the Commerce Department said that construction spending in December declined 1.4 percent from November as housing values continued to fall and credit markets remained tight. Spending on residential construction in December dropped 22 percent from the same month a year ago.
“If households are shying away from spending, what’s going to cause businesses to start spending again?” said Aaron Smith, senior economist at Moody’s Economy.com.
Putting away money and paying down debt may be good for one family’s kitchen-table economics, but the broader economy suffers in the short term when millions of families do it.
A dollar saved does not circulate through the economy and higher savings rates translate into fewer sales and lower revenue for struggling businesses. As Congress considers an US$800 billion package of tax cuts and spending plans, policymakers said that the most effective stimulus was money that would be spent quickly.
Still, some economists said the rising rate of savings was a natural reaction, penance for the US’ spendthrift ways.
“If American consumers are less indebted, live within their means and have more money in savings, they are better positioned to spend on a sustainable basis for years to come,” said Greg McBride, senior financial analyst at Bankrate.com. “As painful as that is economically in the short run, these developments will better serve us in the long run.”
The personal saving rate of 2.9 percent in the fourth quarter of last year was the highest since early 2002, when the country was recovering from the dot-com recession and the shock of the Sept. 11 attacks. The savings rate rose to 3.6 percent in December, from 2.8 percent in November.
The gains have come even as interest rates drop to negligible levels. A weekly Bankrate.com survey showed that the average one-year certificate of deposit paid 1.63 percent interest, while average money-market accounts paid 0.54 percent interest.
On average, Americans have saved about 7 percent of their disposable income since 1929, but that figure dropped to virtually nothing several years ago.
The Federal Reserve cut interest rates to stimulate growth, and Americans took advantage of easy credit to finance trips to the mall, remodeling projects and new cars. Consumer spending accounts for about 70 percent of growth.
But that spending largely dried up as home values fell and credit tightened, and the drought is likely to continue.
“The whole economy was leveraged up, and we’re now suffering the consequences,” said Peter Schiff, president of Euro Pacific Capital, who offered early warnings about the current economic calamity. “The problem is, that’s a painful process. When you have an economy that’s used to all this spending and borrowing and you take it away, it’s going to go through some pains.”
In the last three months of last year, the economy contracted at its fastest pace in a quarter of a century. As Americans spent less, companies cut jobs and reduced their investment in equipment, software and buildings to trim their costs.
“The weakness is feeding on itself,” said James O’Sullivan, an economist at UBS. “You’ve had the spread of weakness from housing to Wall Street to Main Street. You’ve got a credit crunch, which is now affecting every part of the economy, including the consumer.”
The department store chain Macy’s became the latest to cut jobs, saying on Monday that it would dismiss 7,000 workers, or about 4 percent of its work force.
The unemployment rate, at 7.2 percent, is at its highest in 16 years, and some economists say it is likely to top 9 percent in this downturn. The economy shed about 1.9 million jobs in the last four months of last year, and is losing more than 500,000 a month.
Economists predict that when the government releases last month’s jobs data today, the unemployment rate will rise to 7.5 percent.
Overall, personal spending fell 1 percent, or an annualized US$102.4 billion in December, after a drop of US$77.8 billion in November, the Commerce Department reported.
Adjusted for price changes, real income increased 0.3 percent in December, while real spending fell by a slightly lower 0.5 percent. The so-called real rates reflect the continuing relief that lower gasoline and energy prices have offered consumers in a recession that began in December 2007.
Spending on durable goods fell 0.8 percent in December while purchases of nondurable goods fell 1.8 percent, after increases in November.
“Consumers are rational,” said Joshua Shapiro, chief US economist at MFR. “They respond to incentives and conditions, and right now the conditions and incentives are: Spend as little as you can, and pay down as much as you can. You hunker down. That’s what the consumer’s doing.”
They did it again. For the whole world to see: an image of a Taiwan flag crushed by an industrial press, and the horrifying warning that “it’s closer than you think.” All with the seal of authenticity that only a reputable international media outlet can give. The Economist turned what looks like a pastiche of a poster for a grim horror movie into a truth everyone can digest, accept, and use to support exactly the opinion China wants you to have: It is over and done, Taiwan is doomed. Four years after inaccurately naming Taiwan the most dangerous place on
Wherever one looks, the United States is ceding ground to China. From foreign aid to foreign trade, and from reorganizations to organizational guidance, the Trump administration has embarked on a stunning effort to hobble itself in grappling with what his own secretary of state calls “the most potent and dangerous near-peer adversary this nation has ever confronted.” The problems start at the Department of State. Secretary of State Marco Rubio has asserted that “it’s not normal for the world to simply have a unipolar power” and that the world has returned to multipolarity, with “multi-great powers in different parts of the
President William Lai (賴清德) recently attended an event in Taipei marking the end of World War II in Europe, emphasizing in his speech: “Using force to invade another country is an unjust act and will ultimately fail.” In just a few words, he captured the core values of the postwar international order and reminded us again: History is not just for reflection, but serves as a warning for the present. From a broad historical perspective, his statement carries weight. For centuries, international relations operated under the law of the jungle — where the strong dominated and the weak were constrained. That
The Executive Yuan recently revised a page of its Web site on ethnic groups in Taiwan, replacing the term “Han” (漢族) with “the rest of the population.” The page, which was updated on March 24, describes the composition of Taiwan’s registered households as indigenous (2.5 percent), foreign origin (1.2 percent) and the rest of the population (96.2 percent). The change was picked up by a social media user and amplified by local media, sparking heated discussion over the weekend. The pan-blue and pro-China camp called it a politically motivated desinicization attempt to obscure the Han Chinese ethnicity of most Taiwanese.
RSS