Consumer spending dropped 0.3% in September, the largest decline in four years. July and August showed no change in spending. The standstill and slide in recent months represents the purchasing activity of US consumers.
In recent years, the growth and abuse of consumer credit has caused the US economy to be dependent on consumers borrowing to purchase goods. According to the Federal Reserve Board, the average consumer debt (credit card debt) per household has reached $8,565, an increase of 15% since 2000. Disposable income required to be set aside to pay for household debt (credit cards, auto loans, etc.) stands at 14.5%, compared to 11% in 1993.
Not only has consumer spending correlated with taking on credit card debt, but the consumer savings rate has also significantly decreased. The Bureau of Economy Analysis reports the nation's savings rate, which exceeded 8% of disposable income in 1968, now stands at 0.4%.
The American mindset, "buy now, pay later" must end! Many are finding that they simply cannot live this lifestyle any longer because it is becoming increasingly difficult to obtain more credit. The high default rates have affected the credit markets in such a way that they have re-standardized credit requirements.
Now is a great time to analyze your personal finances. Before the holiday season is in full swing sit down and look at your budget. If you don't have a budget now would be a great time to start one. Please email conrad@landmarkmortgage.com or call if you need help setting starting a budget or just want a few helpful tools.
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