Economic Recovery May Be Slowed By Consumers With Credit Card And Other Debts

Nowadays, some economists are saying that recovery from one of the most devastating economic downturns in America may be on the horizon. There are several signs supporting this, they say. Factory orders for products and stock prices are beginning to gain, the housing markets are showing signs of stabilizing and job losses are beginning to moderate. Officials say that the growth of the economy is already beginning.

While these may be welcome changes for the economy, analysts say they will not be enough to bring back the economy to full health. A big factor missing in the equation is the participation of consumers. A huge 70% of economic activity depend on consumer spending. Unfortunately, consumer spending will not be returning to previous levels anytime soon.

When the economic crisis hit, consumers found their finances completely ruined. Large credit card debts hit many American consumers. The crash of the housing market also made a huge dent and so did the surge in unemployment rates. As a result, American consumers began to button down on their spending. Many American households decided to let go of extra spending and focus on necessities. Even more decided to tone down as much as possible on credit card spending. Reports from consumer spending watchers show that this trend is not about to end anytime soon.

American Express ran a survey of 2,032 people last month asking them what they would do should they find $500. A list of possible answers included going shopping, dining out at a restaurant and taking a trip. Surprisingly, only 10% chose any of the luxury expenses. The majority of the respondents opted for paying off their bills, using the money to reduce their credit card debt or putting the money on savings.

The survey results shows the current trend of consumers prioritizing necessities spending and savings. A lot of consumers, it seems have been bitten hard by the economic downturn and are getting spending shy. However, the problem goes far deeper than consumers not wanting to spend. A large number of consumers simply avoid spending because they cannot.

A large number of American consumers are carrying too many debts and these will probably stretch on even until the recession has ended. According to data from the Federal Reserve, American household debts collectively saw a rise of 133% of income in 2007, after taxes. This is double the percentage seen during the middle of the 1980s. What this means is that American consumer debt in 2007 was a third more than the take home pay and other income sources that they had.