Tags: Consumer | Spending | Recession | economy

Motley Fool: Weak Consumer Spending May Fuel 8-Year Recession

Tuesday, 04 Oct 2011 08:04 AM

Americans are paying down household debts and forgoing spending and will continue to do so for another eight years, locking the country into a period of recession or tepid growth at best, according to Motley Fool.

While many like to blame weak recovery on fresh regulations such as those imposed by the Dodd-Frank law overhauling financial oversight, the truth is, people would rather pay bills than buy things.

"The evidence is consistent with the view that problems related to household balance sheets and house prices are the primary culprits of the weak economic recovery," the Fed writes, according to Motley Fool.

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(Getty Images photo)
"That's incredibly important," Motley Fool's Morgan Housel notes.

"The recovery isn't slow because of regulation, taxes, healthcare reform, or some vague 'uncertainty' boogeyman. It's slow because consumers are still deleveraging."

There is some good news out there.

"The good news is that deleveraging has already taken place in a big way. Household debt payments as a percentage of income have plunged to the lowest level in 15 years, driven largely by refinancing at lower interest rates," Housel writes.

The bad news: the trend will last another eight years.

"Some look at the economy's total debt load, including federal debt, and argue that it'll probably be around 2017 before things are back to normal at the rate we're now deleveraging."

Consumer spending accounts for the bulk of U.S. economic output, and some point out while consumers pay off debts, they won't be able steer the economy back on track.

The BlackRock Investment Institute reports that the ratio of household debt to personal income (wages and salaries only) remains at 154 percent, which is only 7.5 percentage points lower than in pre-recession peak.

"While some progress in consumer debt reduction has been made, the heavy lifting of meaningful deleveraging still lies ahead," BlackRock finds, according to CNBC.com.

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Americans are paying down household debts and forgoing spending and will continue to do so for another eight years, locking the country into a period of recession or tepid growth at best, according to Motley Fool. While many like to blame weak recovery on fresh regulations...
Consumer,Spending,Recession,economy
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2011-04-04
Tuesday, 04 Oct 2011 08:04 AM
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