Barrons Cover Story Spending

>   
>   (email exchange)
>   
>   On Sun, Nov 21, 2010 at 11:50 PM, Bob wrote:
>   
>   Don’t underestimate the amount people will possibly spend this holiday season.
>   
>   90 Percent have jobs, and they are NOT as worried as they were in 2008 and 2009
>   about Losing their jobs. This can create a good environment for stocks going
>   forward.
>   
>   There is a lot of corporate and consumer cash on the sidelines and they could
>   be feeling a bit better about spending it now and going forward.
>   

Moreover, household financial obligations—defined as debt and lease payments, rent, home insurance and property taxes—have fallen to 17% of disposable income, down from an all-time high of 18.9% in the third quarter of 2007 and below the 30-year average of 17.2%, notes James Paulsen, chief investment strategist at Wells Capital Management.

Yes, this is the direct result of the large federal budger deficit.

Reflected in those numbers is a sharp increase in the personal savings rate, which rose to a peak of 8.2% in May 2009 from as little as 0.8% in April 2005. The savings rate—the percentage of personal income that isn’t consumed—since has fallen back to 5.3%.

Yes, this is the direct result of the large federal budger deficit.

The savings rate typically rises during recessions and falls amid recoveries, as the public grows more confident about the future. Economists such as Paulsen expect that the savings rate will plateau around current levels.

Yes, this is the direct result of the large federal budger deficit.

A Better Balance Sheet

Household debt has fallen by about $1 trillion, to $11.5 trillion, since the fourth quarter of 2008…

Yes, this is the direct result of the large federal budger deficit.

If the Bush tax cuts aren’t extended for those making at least $250,000 a year, some $65 billion will start coming out of their paychecks and pockets starting Jan. 1. The potential hit to consumer spending could be significant, because although this group represents only 18% of U.S. taxpayers, they account for 35% of spending, notes ConsumerEdge Research.

Yes, reducing the federal deficit is contractionary.

MANY AMERICAN CONSUMERS still have too much debt, and potential threats such as renewed inflation, rising interest rates and higher taxes could prove formidable obstacles to a recovery in spending. But John Q. Wal-Mart and Jane Q. Saks have worked hard in the past two years—certainly harder than their Uncle Sam—to mend their financial health. They could be in much better shape than you think.

Yes, this is the direct result of the large federal budger deficit.

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