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Consumers keep scaling back

February 3, 2009

Consumers, in keeping with the rough times have appropriately reduced their consumption appetite for six months in a row and increased their savings rate to 3.6 pc from 2.8 pc – a sign which will not be taken very favourably by consumer facing corporates.

Interestingly, the American policymakers are facing a situation which can be paralleled between Scylla and Charybdis. Although for the long term, American consumers must learn to

  • Increase their savings to [disposable] income ratio [Present savings rate=3.6pc]
  • Decrease their debt to income ratio []

But as with everything long term, its short term implications are sounding like death knell for consumer facing corporates like WalMart, Google, Amazon etc.

Already the credit card spending statistics are showing heavy falls, which is to be expected at these times. Facing this heat, already Circuit City and other retailers are downsizing heavily.

Some images can help to think better regarding the secular statistics of American households:

Thanks to Balboa Media Groups

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4 Comments leave one →
  1. February 5, 2009 1:36 pm

    Consumers should ignore the commentary admonishing them of spreading “weakness,” and “lacking confidence.”

    http://pacificgatepost.blogspot.com/2009/02/obama-watch-consumers-and-learn.html

    Stay the course.

  2. February 5, 2009 1:45 pm

    Absolutely.
    In fact, criticising consumers for spending less is a foolish business of ridicule.
    Its almost like, charging a victim of crime of not being strong enough to prevent it at the first place.

    The fault with the system should be mended first. Likewise, the chink in the economy is huge [practically huge] debt , which can only be countered by savings. Else how else, can you explain the spectacular growth of companies [riding on consumption] in the past two decades.
    Think of WalMart- low prices=low margins but huge profits. The numbers of volumes are at play.
    Unfortunately this chink is exposed and has widened to a chasm.

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