Frugality Becoming a Necessary Way of Life Post Recession

Even as economists and policy makers continue to present evidence of recovery of the economy, it seems that the average American is still not taking any chances. Their penny pinching ways and tightly closed purse strings are not yielding way to the slowly recovering markets easily. Economists believe that people are highly unlikely to start spending freely anytime soon.

A large number of economists feel that the new cautious approach to spending, which is now prevalent among Americans, is here to stay for quite some time to come. This is in spite of the fact that there has been clear evidence in recent months of definite economic recovery.

Signs of economic recovery

In recent months, consumer spending has gone up, clearly indicating a return of confidence in the markets. The improving trend has been steady over the past 5 months now. Thanks to the tax credits offered, demand for housing has also received an impetus. Employment figures are also beginning to show signs of improvement, although they are not anywhere near the desired levels yet. Retail sales have been rising for the past 3 months consistently. The stock market has shown a whopping 70% improvement since March 2009.

In spite of all of these positive indications, the average American, who has been burnt badly by the crash, is keeping a wary eye on the markets from the sidelines.

Consumer spending trends

Although household net worth has been rising for three consecutive quarters, spending hasn’t picked up enough to match the improvement in this area. During the recession, Americans lost so much, so suddenly, that the slowly improving economic climate is simply not enough to re-instill confidence.

The fact that most of the cautious people have reasonably well paying jobs and manageable debts is still not encouraging them to spend freely.

However, the wealthy are splurging once more, as indicated by the improved demand for luxury goods. Other ‘extra’ expenses like vacation spending, eating out etc have also witnessed an improvement. It is clear that these are being fuelled by the richer sections of the population and not the middle or low income people.

While economists are hoping that splurging by the rich will propel the economic recovery forward at a quicker pace, the fact that the disposable income savings is hovering at 3.1% shows that a majority of people are still keeping a substantial percentage of cash set aside for a rainy day. Bottom-line is that the recession has brought about a permanent or at least a long lasting change in the lifestyle, saving habits and perspective of American people with regards saving.

Speak Your Mind