Consumers Still Struggling to Save

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NEW YORK (MainStreet) — With 2010’s holiday shopping numbers showing Americans reaching deeper into their pockets these days, are consumers' debt reduction campaigns going by the wayside in 2011?

A new study from Freedom Debt Relief says that Americans are trying to find that “sweet spot” between saving and spending, but they are having a tough time doing it.

The good news for the economy was that the 2010 holiday season was, in relative terms, a big success. Same-store sales grew at a 14% pace for the months of November and December 2010 according to RetailTraffic.com, and the site tabs total sales at about $525 billion.

Some economic observers say that if any kind of major spending trend continues then all consumers’ hard work might be for naught.

“From an economic perspective, it is encouraging to see consumers spend more at the holidays than in the past two years,” says Kevin Gallegos, vice president of San Mateo, Calif.-based Freedom Debt Relief. “However, even though unemployment is down and personal income is up slightly, that level of spending is a concern for people who might have simply added holiday spending to a worrisome debt load.”

So what do the Freedom Debt Relief numbers show? Mainly that U.S. consumer debt is moderately in decline, with some exceptions, and that personal income and employment are on the rise. All three data sets would seem to show that Americans are climbing out of the economic ditch after four long years, but that momentum could be blunted by higher household spending.

Here’s a snapshot of the numbers:

  • Debt diving downward: FDR's study cites Federal Reserve numbers showing that total U.S. consumer debt (not counting mortgage debt) is under $2.4 trillion these days, the lowest debt level since February 2007.  U.S. consumer debt burdens have fallen 7.2% since late 2009, FDR reports.
  • Revolving debt at a five-year low: Consumer revolving debt (mainly from credit cards) stood at $796.5 billion at the end of 2010. The good news here is that revolving consumer debt has fallen for 25 straight months and is at its lowest point since 2005.
  • Some debt is rising: Americans are beginning to dip their toes back into some debt markets. “Non-revolving debt” for things like new cars and student loans appears to be moving back up after a brief lull. The FDR report says that non-revolving debt rose 4.2% in November 2010 from the same period in 2009.

The study also shows that personal income is on the rise, by 0.3% in November 2010. But personal income expenditures rose by 0.4%, suggesting that people are once again spending more than they’re making, albeit slightly. Sure, some consumer spending could help the economy in the short term, but if the trend stretches out for six months to a year, Americans could find themselves behind the financial curve again.

As the recession has shown, that’s the last place U.S. consumers want to be. But that’s where they could be headed unless they rein in their personal spending.

—For the best rates on loans, bank accounts and credit cards, enter your ZIP code at BankingMyWay.com.

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