Transcripts

The Great Consumer Spending Cutback

SUZANNE PRATT: Concerned consumers are cutting back on consumption in a big way. Personal spending fell by 1 percent in December, the sixth straight monthly decline. Worries about jobs as well as tightened credit conditions were key reasons people kept their wallets shut. As Erika Miller reports, with consumer spending accounting for two-thirds of economic activity, experts worry this trend could prolong the recession.

ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: For many Americans, the shopping spree is over. Outside Macy's Herald Square today, we found many shoppers buying only necessities.

UNIDENTIFIED FEMALE: I'm shopping for the essential items, clothes for work and stuff like that. So it's not like anything I don't need. It's things that I need.

UNIDENTIFIED MALE: At work, we're all frightened, a little bit. We're all more or less scared that at some point we will get laid off, maybe. But until then, there's really nothing you can do.

MILLER: But there is some good news. Less spending is helping boost the national savings rate. The average American household saved about $0.03 of every dollar in December, compared to next to nothing at the start of last year. Still, economists see these trends as a challenge to overcoming recession, because consumer spending accounts for more than two-thirds of economic growth. Economist Cary Leahey says the key to reviving consumer spending is stabilizing the labor market.

CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: The most important single determinant of consumer spending is how people feel about the labor market, whether or not they have a job, are they worried about their job or they know someone well enough that they know what their job prospects are.

MILLER: He and others expect President Obama's economic stimulus plan and efforts to support banks will help eventually. Economist Bob Brusca thinks the government should also encourage banks to lower lending standards. That way, more Americans could take advantage of record low interest rates to borrow and refinance.

ROBERT BRUSCA, CHIEF ECONOMIST, FACT & OPINION ECONOMICS: It's about banks. It's about getting banks that have taken Federal money to loosen up and use it for the purpose of digging the economy out of a ditch, instead of trying to win some banking balance sheet beauty contest.

MILLER: Some economists believe the pullback in consumer spending will last longer than the economic downturn. They say people are changing their shopping habits and the changes could stick. Erika Miller, NIGHTLY BUSINESS REPORT, New York.