An Anxious U.S. Consumer
Let's take a closer look at the U.S. consumer, with a particular focus on the outlook here with respect to incomes and debt. The term "deleveraging" is one often heard amid discussions on these matters. As you probably know, this pertains to consumers cutting back on spending in order to save more and pay down debt -- or simply to folks defaulting on their debt. Higher default rates, meanwhile, makes banks reluctant to lend, thus limiting the supply of credit. As a result, both demand and supply are constrained, and each is part of the deleveraging process.
What's of interest here is why households take on debt, or why they choose to pay it off. Households tend to smooth consumption over time, such that a volatile income pattern doesn't make for a volatile consumption pattern. When consumers expect their future income to increase, they take on more debt so that their consumption increases a bit more now, in accordance with their expectations of a big jump later. And, of course, the reverse is true as well....444 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.
There’s no substitute for a trading floor to get great ideas, so Jim Cramer created a better one at Real Money and blogs there exclusively. We then added legendary hedge fund manager, Doug Kass, with his exclusive Daily Diary and best investing ideas. Staffed with more than 4 dozen investing pros, money managers, journalists and analysts, Real Money Pro gives you a flood of opinions, analysis and actionable trading advice found nowhere else, and allows you to interact directly with each expert.
Already a Subscriber? Please login.
