Who Will Save The Economy? Not Strapped Consumers

Consumer delinquencies hit a record high in the first quarter of the year. Debt-to-disposable income ratios are down only slightly from the beginning of the recession. Who will save the U.S. economy if consumers can’t return to our habits of buying crap we can’t afford and don’t need?

Increasing nemployment and underemployment are making consumers reluctant to borrow and spend money.

The reason for rising delinquencies, and the reluctance to borrow more, is growing unemployment and, as a falling work week demonstrates, underemployment. Joseph Lavorgna, Deutsche Bank’s chief U.S. economist, points to a pattern of increasingly “jobless” recoveries starting in the 1980s. Furthermore, he says, the last upswing, which ended officially in December 2007, was weighted disproportionately to the construction and financial sectors. Jobs lost there won’t return soon.

Restrained incomes and higher saving promise a grinding recovery with the threat of deflation and a lackluster outlook for the country’s banks and cyclical industries. The wild card is whether authorities push aggressively for a politically more palatable but ultimately dangerous alternative: Inflating those debts away.

Inflation! Yay! Good news for Americans who have next to no savings but plenty of debt. We’re in trouble when none of the possibilities for recovery are particularly palatable.

Don’t Count on Consumers [Wall Street Journal]

(Photo: Great Beyond)

Want more consumer news? Visit our parent organization, Consumer Reports, for the latest on scams, recalls, and other consumer issues.