Robert Manning, author of Credit Card Nation and Living With Debt, says the ability of consumers to continue propelling the U.S. economy by assuming higher levels of mortgage and consumer debt appears to be reaching its limit at the end of 2007.
Manning’s study, “Survey of U. S. Consumer Sentiment: Rising Financial Anxiety and Expected Decline in Consumer Spending,” focuses on 500 middle-income households across the U.S. The results show:
The study found that the self-reported, expected decline in household holiday spending is consistent across all income groups with more than four times as many households reporting lower spending (36.1 percent) than higher spending (8.2 percent).
Nearly one-half (48.7 percent) of those households with rising credit card balances report that they will cut back on holiday expenditures while nearly one-half (45.8 percent) of those families that have already lowered their credit debts also plan to reduce their winter spending.
More than a third (37.2 percent) of all households either postponed or decided not to make a major purchase over the last six months. More disconcerting about American household financial anxiety is the reluctance to spend over the next six months, with nearly half (47.7 percent) not expecting to make a major consumer purchase. Among those planning a consumer purchase in 2008, 60.8 percent expect to buy a moderate cost product such as a camera, plasma TV or computer; only 5.3 percent plan to purchase a house or condo.
Significantly, moderate-income households (under $4,000 monthly take-home income) are more likely to plan purchases (61.8 percent) than higher income households (48.5 percent) with over $9,000 after-tax monthly income.
Whether in terms of household income or net worth, it does not appear that more affluent households will maintain spending levels that are sufficient to avoid a consumer-led recession. Furthermore, most households report a sharp increase in household “belt tightening” over the next six months.
Together, these findings indicate that U.S. consumers will not be the engine of robust economic growth in 2008 as the declining housing market continues to erode household wealth and rising debt service obligations squeeze the capacity of American families to make future discretionary purchases.
A research professor and the director of the Center for Consumer Financial Services in RIT’s E. Philip Saunders College of Business, Manning believes a contraction in consumer spending together with the housing and mortgage crisis will generate increasing job losses and slow down in national economic growth.
A specialist in consumer finance, socio-economic trends and retail banking deregulation, Manning has testified before Congress on the use of credit. He has been featured on the “CBS Evening News,” CNBC’s “On the Money” and National Public Radio’s “On the Point,” and he has been a consultant at the Pentagon for the military’s “Financial Fitness” campaign.
He recently appeared in a cameo interview for the December documentary release of Morgan Spurlock’s “What Jesus Would Buy” and the 2006 hard-hitting documentary “In Debt We Trust: America Before the Bubble Bursts,” for which he also served as the film’s editorial advisor.
Notes: Manning is available to elaborate on how the findings affirm his earlier predictions for 2008 that the “consumer-led” recession will unfold this summer. He can be contacted at firstname.lastname@example.org.
Rochester Institute of Technology is internationally recognized as a leader in computing, engineering, imaging technology, fine and applied arts, and education of the deaf. More than 15,500 full and part-time students are enrolled in RIT’s 340 career-oreinted and professional programs, and its cooperative education program is one of the oldest and largest in the nation.
One of eight colleges at RIT, the E. Philip Saunders College of Business is accredited by the Association to Advance Collegiate Schools of Business International (AACSB International) and enrolls more than 1,200 undergraduate and graduate students. In fall 2007, the college created an academic major for incoming students in its newly established Center for Consumer Financial Services.