Americans are focused on paying back their debts while they worry about finding jobs and bringing home enough money to pay the bills.
This week's credit check: Consumer spending accounts for 70% of the US economy. Household debt is currently 90% of GDP.
There seems to be a Catch-22 right now that has a lot of people worried: consumers are feeling reluctant to spend and more inclined to save because the economy is so crappy, yet we need consumer spending to ramp up to stop it from sucking. Consumer spending, after all, accounts for 70% of the economy. Without that part humming smoothly, it'll be hard to get the whole system back to full working order. But according to economists at JPMorgan, household purchases dropped in June for the third consecutive month, the first time that's happened outside a recession since 1959 (all adjusted for inflation) -- although retail sales rose .5% in July.
So why won't Americans go out and spend their money like true patriots? Because a lot of them are focused on paying down the debt they racked up in the run up to the recession. The rate of borrowers 90 or more days late on credit card payments just fell to 0.6%, the lowest in 17 years. Total outstanding revolving credit card debt was down 4.6% during the first half of the year compared to the same period a year before. Consumers spent $72 billion more paying down credit card debts than buying things in 2009 and 2010. Clearly we have put a high premium on breaking free from credit card debts and avoiding the high interest rates and fees associated with being behind.
But we have a long way to go. There's still a lot of debt hanging over consumers. In 1990, household debt was about 60% of GDP; in 2000, it was less than 70%. But right now it's at 90% -- better than the first quarter of 2009, when it was 99.5%, but still leaving plenty more room to deleverage.
Beyond high debt loads, consumers are also pretty freaked out by current economic signs. In the first weeks of August, consumer sentiment fell to the lowest level since 1980, when the country was in a recession (and we're technically not in one right now). What's getting them down? High unemployment, stagnant wages, and the ridiculous debate in Congress over the debt ceiling. Their top worries are about the difficulties they face in bringing money home -- and how little Congress seems poised to do about fixing their problems. Little wonder that when we're not sure we're going to have a job, let alone make enough to pay the pills, Americans are wary of splurging.
The Fed seems to have been hoping that it could goose consumers into taking on more debt to go buy things by announcing last week that it was going to keep credit cheap. But consumers aren't asking for more debt to help them spend. They're asking for more jobs and decent wages. After being admonished time and again for "recklessly" racking up debts in the run up to the financial crisis, now they're being admonished for not taking on enough debt. Rather than trying to find ways to make us borrow, maybe it would be better for everyone if we were simply employed and paid well for the work we're doing.
Bryce Covert is Assistant Editor at New Deal 2.0.