Seems time to celebrate if you believed the headlines this week:“Families Slice Debt To Lowest In 6 Years”. (Wall Street Journal) “Households Grow 2.1 Trillion Richer” (CNN Money)
You just can’t help but feel all warm and fuzzy inside with a headline like that, right? Hmmm — we’re skeptical. We all know that despite some signs of recovery in the economy, the day to day struggles for consumers haven’t really eased up much. Reading between the lines offered what was actually pretty dismal news – and some alarming predictions. So what gives you ask?
First off, stock performance has been pretty positive lately so portfolio values have grown — thus driving up the household asset values. Remember though, this doesn’t necessarily signal a change in savings behavior just the benefit of riding the generally upward trend in the market. And, these gains could quickly be lost if the market derails with turbulence in the middle east, rising commodity prices, or any number of other potential crises.
Well, even if asset growth isn’t directly tied to consumer savings behavior, we’re still experiencing a reduction in household debt, right? Not so fast on that one either. The household debt numbers are going down, but not because consumers are choosing to use their extra cash to pay down their bills. Rather, debts are going down as a result of real estate short sales and foreclosures and the charging-off of significant amounts of credit card debt. Yes, less debt all right — with a healthy helping of lower credit ratings for consumers. Celebrating yet?
The final prediction in the Wall Street Journal article suggested that with all this good news, we could expect to see “better consumer spending” in 2011. I guess I can agree that we’ll be spending more… $73 dollars to fill up the tank this week. Food prices will rise too, no doubt. I’m not sure I would paint this as positive news, though. I wonder how the press will make rosy headlines from that news. Any ideas?