Rarely in recent years have we read or heard about a possible shift with American consumers and their savings/spending behaviors. It’s mostly ‘compared to other countries, we’re pretty lousy savers.’ The February 29 Merrill Lynch Market Economist suggests that a major shift is happening:
Borrowers are also behaving differently
Not only are the lenders behaving differently, but so are the borrowers. Barely
more than 5% of the banks are now reporting rising demand for consumer
credit—at the 2003-05 debt bubble peak, this number approached an
unprecedented 40%. The Fed survey showed that not one bank reported positive
demand growth for either subprime or non-traditional mortgages, and a mere 2%
reported rising demand for prime mortgages! People’s attitude toward debt is
changing. After this parabolic rise of credit extension far in excess of underlying
personal incomes during the last 5-10 years, debt is now being viewed as a four-
letter word at best, and a ball and chain at worst. The public wants to climb out of
the morass. You see it in the data and you see it in the surveys. The economists
do not believe that people can change, but they will.
People do have the capacity to change. In fact, they already are.
Consider that miles driven by the average American now are down 0.5% from a
year ago. Energy usage in real terms has declined 1.2% in the face of record-
high oil high prices. There is a growing focus on health, education and other
basic necessities, and a focus away from conspicuous consumption on bigger
homes, fancy restaurants and expensive vacations. And the way that households
now seem to be shunning debt points to a renewed focus on personal savings
and intensified efforts on retirement financial planning
“The economists do not believe that people can change, but they will.” Wow, seeing will be believing. But if these guys are right, coupled with recent projections of the oldest Baby Boomers soon downsizing their homes and lifestyles as they get into their late 60’s and 70’s, watch out. Economic growth in a lot of areas is about to be stunted in the years ahead.