According to the Federal Reserve Board, consumer debt has been rising steadily, jumping a whopping 9.5 percent last year. At the same time, the Commerce Department showed that savings as a percent of disposable income dropped to a negative 0.80 percent last year. Experts say workers saved less and were willing to shoulder more debt because they thought rising stock prices would, in effect, create more savings. That would make you less likely to save out of current income. Some concern may be justified.
Surveys show that consumers appear to be tightening the purse strings as they look ahead.
A University of Michigan survey found that the number of consumers who plan to withdraw money from their brokerage accounts to make purchases has declined 24 percent since this time last year. Among those who do plan to withdraw to spend, the amount has been cut in half. He said overall levels of consumer confidence began to decline in February. Curtin believes families will continue to purchase necessities but will cut back on clothing, entertainment and vacations. As with the length of the downturn itself, analysts disagree about how long the negative wealth effect will restrain consumer spending.