More Americans spend less, save more
Sunday, 19 April 2009
LOS ANGELES, Apr 18 (Xinhua): The current financial crisis has forced Americans to change their way of life by borrowing less, saving more and being far more careful with their spending. Economists worried such changes would slow the recovery of economy as the government encourages spending.
This trend is demonstrated by the February trade figures released in the United States, which showed a trade deficit of 36 billion U.S. dollars, equal to January's six-year low and well below the 62 billion dollars at the same period last year.
Consumer spending in the United States rose to 70.5 per cent of gross domestic product from 67.2 per cent from 1998 to 2008. Economists believe that the share of spending of GDP would lurch back to its decade ago level, which would fall by 470 billion dollars.
US President Barack Obama urged Americans to change their habit in a speech Tuesday. "We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock," Obama said.
"We must lay a new foundation for growth and prosperity, a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad."
According to the US Bureau of Economic Analysis (BEA), Americans are spending 164 billion dollars less (in 2007 dollars) in January 2009 compared to January 2008. Out of that, 112 billion dollars is user-operated transportation-purchases of cars and trucks, and spending on gas and oil.
That shows that in financial crisis, Americans choose not to purchase new cars and trucks, especially SUVs and other sports utility cars and travel less with their own cars to save gas.
Food has been the second area Americans prefer to spend less, with food spending dropping 56 billion dollars. Economists said the rise of food price is part of the reason for the decline of spending on food. Many Americans choose less expensive food to save money.
Clothing is the third area of decline in spending. Including accessories and jewelry, Americans spent less than 18 billion dollars.
Spending on household operation dropped 15.9 billion dollars, followed by alcohol beverages with a drop of 11.2 billion dollars.
Many Americans were described as "creditaholic." They charged their credit cards to buy new cars, new clothing, all the fancy things they liked. But now they have to recover from that.
When they face the danger of losing their jobs or have already lost their jobs, they take "staycations," grow their own vegetables in there backyards, buy only used cars and pre- pay cell phones. Some credit card companies even pay a fee for the card holders to discontinue their service. From "creditaholic" to " staycations," some Americans learned not to use credit cards to avoid over-spending.
Meanwhile, Americans who usually did not put much money in their saving accounts began to save money. U.S. government statistics showed that Americans' savings rate, as a per centage of after-tax incomes, rose to 2.9 per cent in the last three months of 2008. That's up sharply from 1.2 per cent in the third quarter and less than 1 per cent a year ago.
Usually, when the savings rate rises, spending falls, and spending accounts for about 70 per cent of economic activity in the United States. When consumers refuse to spend, companies cut back, layoffs rise, people pinch pennies even more and the recession deepens.
Economists said the downward spiral has hammered the retail and manufacturing industries. For years, stores enjoyed boom times as shoppers splurged on TVs, fancy kitchen decor and clothes. All of a sudden, Americans seemed reluctant to buy those things. Many chain stores such as Circuit City were thus closed.
Therefore, while President Obama called on the Americans to change their way of life to spend less and save more and export more, some economists call it the "paradox of thrift." What's good for individuals-spending less, saving more-is bad for the economy when everyone does it.
But other economists said many consumer goods Americans buy are imported from other countries, and the decline of spending on such products would reduce American import, which will have no big impact on American made products, and US exports usually include machinery and technology goods that are not as easy to forgo. They held that when more Americans spend less and save more, the impact on countries like China which depend heavily on exports to the US will be much bigger.
This trend is demonstrated by the February trade figures released in the United States, which showed a trade deficit of 36 billion U.S. dollars, equal to January's six-year low and well below the 62 billion dollars at the same period last year.
Consumer spending in the United States rose to 70.5 per cent of gross domestic product from 67.2 per cent from 1998 to 2008. Economists believe that the share of spending of GDP would lurch back to its decade ago level, which would fall by 470 billion dollars.
US President Barack Obama urged Americans to change their habit in a speech Tuesday. "We cannot rebuild this economy on the same pile of sand. We must build our house upon a rock," Obama said.
"We must lay a new foundation for growth and prosperity, a foundation that will move us from an era of borrow and spend to one where we save and invest, where we consume less at home and send more exports abroad."
According to the US Bureau of Economic Analysis (BEA), Americans are spending 164 billion dollars less (in 2007 dollars) in January 2009 compared to January 2008. Out of that, 112 billion dollars is user-operated transportation-purchases of cars and trucks, and spending on gas and oil.
That shows that in financial crisis, Americans choose not to purchase new cars and trucks, especially SUVs and other sports utility cars and travel less with their own cars to save gas.
Food has been the second area Americans prefer to spend less, with food spending dropping 56 billion dollars. Economists said the rise of food price is part of the reason for the decline of spending on food. Many Americans choose less expensive food to save money.
Clothing is the third area of decline in spending. Including accessories and jewelry, Americans spent less than 18 billion dollars.
Spending on household operation dropped 15.9 billion dollars, followed by alcohol beverages with a drop of 11.2 billion dollars.
Many Americans were described as "creditaholic." They charged their credit cards to buy new cars, new clothing, all the fancy things they liked. But now they have to recover from that.
When they face the danger of losing their jobs or have already lost their jobs, they take "staycations," grow their own vegetables in there backyards, buy only used cars and pre- pay cell phones. Some credit card companies even pay a fee for the card holders to discontinue their service. From "creditaholic" to " staycations," some Americans learned not to use credit cards to avoid over-spending.
Meanwhile, Americans who usually did not put much money in their saving accounts began to save money. U.S. government statistics showed that Americans' savings rate, as a per centage of after-tax incomes, rose to 2.9 per cent in the last three months of 2008. That's up sharply from 1.2 per cent in the third quarter and less than 1 per cent a year ago.
Usually, when the savings rate rises, spending falls, and spending accounts for about 70 per cent of economic activity in the United States. When consumers refuse to spend, companies cut back, layoffs rise, people pinch pennies even more and the recession deepens.
Economists said the downward spiral has hammered the retail and manufacturing industries. For years, stores enjoyed boom times as shoppers splurged on TVs, fancy kitchen decor and clothes. All of a sudden, Americans seemed reluctant to buy those things. Many chain stores such as Circuit City were thus closed.
Therefore, while President Obama called on the Americans to change their way of life to spend less and save more and export more, some economists call it the "paradox of thrift." What's good for individuals-spending less, saving more-is bad for the economy when everyone does it.
But other economists said many consumer goods Americans buy are imported from other countries, and the decline of spending on such products would reduce American import, which will have no big impact on American made products, and US exports usually include machinery and technology goods that are not as easy to forgo. They held that when more Americans spend less and save more, the impact on countries like China which depend heavily on exports to the US will be much bigger.