By Patrice Hill
The Washington Times
Consumers this summer pulled back on spending by the most since 1980, driving the economy into what analysts expect to be one of the nastiest recessions in decades.
The nation’s legions of shoppers started out the summer cutting back on purchases from food and clothing to cars primarily because of record high gas prices of more than $4 a gallon. But the trend worsened even as gas prices dropped with the approach of fall, when a severe credit crisis caused huge stock losses, job cuts and an unprecedented collapse in consumer confidence.
Battered consumers cut spending by 3.1 percent, curbing purchases of both essential and discretionary goods such as clothing, newspapers, food and fuel by 6.4 percent — the most since 1950 — and slashing purchases of big-ticket items such as cars and appliances by a devastating 14 percent, the Commerce Department reported Thursday.
Consumers barely maintained spending on services from haircuts to sports and entertainment.
Consumers normally fuel 70 percent of economic activity and continued to spend during the last recession in 2001, but their rare retraction in the latest quarter caused the economy to shrink by 0.3 percent.
With a multitude of developments from job losses to falling credit card limits conspiring to keep consumers at bay, analysts say, the economy is in for a long slog. A recovery may not arrive until this time next year.
“The U.S. economy has clearly moved into recession,” said Swiss Re economist Kurt Karl. “The outlook has deteriorated sharply over the past two months. The credit crisis will have a severe impact on the real economy — in the U.S. and globally.”
Mr. Karl held out hope that the economy will improve in the second half of next year after the banking system and financial markets slowly stabilize and the housing market ends its steep fall.
American Consumers Borrow Even More
By JEANNINE AVERSA, AP Economics Writer
WASHINGTON – Beaten down and watching their wealth shrink, Americans are burrowing ever deeper — cutting back on spending and spelling more trouble for the sinking economy.
One of the biggest problems saddling the country is damage from the housing market’s collapse. Mounting foreclosures, falling home prices and soured mortgage investments are taking their toll on both individuals and businesses alike.
Federal Reserve Chairman Ben Bernanke, who is scheduled to speak via satellite Friday at a Berkeley, Calif., conference on the mortgage meltdown, is likely to call on government officials and lawmakers to keep working on ways to provide more relief.
The Bush administration is considering a plan that would help around 3 million struggling homeowners avoid foreclosure by having the government guarantee billions of dollars worth of distressed mortgages. The plan also could include loan modifications that would lower interest rates for a five-year period.
Fallout from the housing meltdown has spurred the worst global credit and financial crisis in more than a half century. To combat the problems, the government has taken a flurry of bold steps. The Treasury Department is pouring $250 billion into banks in return for partial ownership and the Fed this week started buying mounds of debt from companies. It also slashed interest rates to 1 percent, a level seen only once before in the last half century.
A new batch of economic reports out Friday is likely to offer fresh confirmation of the stresses weighing on American consumers. Income growth is expected to barely budge in September, inching up just 0.1 percent, according to economists’ estimates. Consumers probably trimmed their spending during the month by 0.3 percent, economists predict.