Shoppers Have Turned Into Savers
Thursday, July 09, 2009SUSIE GHARIB: The latest sales results from the nation's retailers show just how difficult it is to turn shoppers into spenders. Many leading chains reported a drop in same store sales last month. Consumers are anxious about their jobs so they're putting more money into the bank or paying down debt. And as Erika Miller explains, that's causing a seismic shift in the economy.
ERIKA MILLER, NIGHTLY BUSINESS REPORT CORRESPONDENT: Before the recession, shoppers didn't hesitate to satisfy cravings. Nowadays, it's all about savings.
UNIDENTIFIED MALE: You can't spend it if you don't have it.
UNIDENTIFIED FEMALE: I'm thinking twice before I purchase any items that I don't absolutely need.
MILLER: Economists call it the biggest change in consumer spending since World War II. Consumers call it living within their means.
UNIDENTIFIED FEMALE: Now we're very careful. We're on a tighter budget, food budget, house budget. We're on a much tighter budget.
UNIDENTIFIED FEMALE: I look very closely to what I can spend and you know, there's a limit and that's it.
MILLER: The national savings rate now stands at almost 7 percent, the highest in more than 15 years. The rate was negative before the financial crisis. Economist David Wyss says the party is over.
DAVID WYSS, CHIEF ECONOMIST, STANDARD & POOR'S: I think we're at the beginning of a significant change. We've been going through a period of about 20 years now of declining saving rates. Now I think we're going to go into a similar period of rising savings rates as we get back to more normal behavior.
MILLER: But for all the belt-tightening, there has not been much progress in reducing debt. Last year, total U.S. household debt peaked at $13.9 trillion. Now it stands at $13.8 trillion. Some economists think consumers will have to pay off roughly a third of that before the load becomes manageable. The process of debt reduction is expected to be painful and slow. Some economists think it will take six to eight years before household balance sheets are healthy again. That has big implications for the economy. The Obama administration hopes investment in green energy and health care will replace much of the loss in consumer spending. In any case, economist Cary Leahey says it's important to keep your eye on the long term.
CARY LEAHEY, ECONOMIST, DECISION ECONOMICS: We have to save more and spend less. But unfortunately at this phase of the business cycle, with the economy very weak and the unemployment rate poised to move above 10 percent, what's good for us in the long run is very bad for us in the short run.
MILLER: Erika Miller, NIGHTLY BUSINESS REPORT, New York.
