A recent report from the U.S. Commerce Department shows that recent changes in consumer spending and saving habits — a decline in household debt and a rise in household savings — may become the behavioral norm for American consumers.

Spurred on by an unemployment rate that could reach an unprecedented 8 percent this year, consumer spending fell six straight months ending in December, dropping to a low 3.5-percent annual pace last year. The Christian Science Monitor reports that consumers haven’t pulled out of the local economy to this extent since the recession of 1974 (“In Tough Times, U.S. Consumers Forging New Behaviors,” Feb. 2, 2009).

At the same time, consumer savings levels — which jumped to a six-year high in the final quarter of 2008 — are expected to take a sharp upward turn this year, the Commerce Department reports, now that a leveling off of home values and a drying up of credit markets have prevented consumers from being able to borrow like they used to.

While Ken Mayland, president of ClearView Economics, doesn’t expect personal savings levels to reach 8-to-10 percent of disposable income as was the case before the 1990s, he points to the 3.6-percent savings rate seen in December as an indicator of a more realistic picture.

“We’re going to see a new consumer emerge from this rubble,” Mayland said.

Boosting Consumer Spending Will Require Major Changes

Economists predict an upturn in consumer spending this year, but almost half of all Americans surveyed this month in a Diageo/Hotline Poll still say that they don’t expect the economy to get back on track for at least another two to four years.

And while the proposed stimulus package facing Congress is intended to encourage consumer spending, experts say consumers won’t start spending again until investor and consumer confidence is jumpstarted by a few key shifts in market trends:

• A cut in taxes that, under the stimulus package, would be reflected in employees’ pay stubs
• A freeing up of credit allowing for more consumers to refinance their mortgages
• A stemming of home price declines and home foreclosures
• An increase in incentive programs offered by businesses that entice consumers to spend

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