Five years have passed since the U.S. financial system collapsed and sent economies all over the world into a tailspin as housing markets crashed and credit markets dried up. Now, the latest data shows that Americans have started to feel comfortable enough with the recovery to start spending a little more, but families around the world in major economies are still tightly holding onto their cash.
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In August 2007, U.S. consumer spending was at $10.71 trillion, compared to $10.73 trillion in August 2013. Spending dipped in 2009, nearly one year after the collapse, at $9.9 trillion, adjusted for inflation, according to the St. Louis Federal Reserve. On the other hand, according to a new analysis from the Associated Press, families in the world’s 10 biggest economies have continued to spend cautiously post-recession.
The AP found that families in countries including the U.S., Japan, and the United Kingdom, have scaled back borrowing for the first time in the five years post-crisis, taking hundreds of billions of dollars out of the stock market and putting it into savings and bonds instead. A move that the AP says could have major implications around the world, including “starving” the global economy.
Chris Christopher, economist at IHS Global Insight, says the spread of the U.S. financial crisis is a result of fear, despite differences in debt worldwide.
“In global markets, we are seeing a consumer that is reluctant to use plastic,” Christopher says.
"There is a major difference between the U.S. and the eurozone and how they deal with household debt. In Spain, for example, you cannot walk away from a house, but in the U.S., the only things you can’t walk away from are taxes and student loans.”
In Europe, Christopher says consumers are very reluctant to spend. He adds that not surprisingly, those living in debt-laden Greece and Spain, consumers are really hurting and not spending.
“In Europe, the consumer is having a much harder time than we are having here in the U.S.,” he says.
The AP report says weak growth globally means that wages in the U.S. will continue to rise slowly, bad news since they aren't keeping up with inflation. European unemployment, which is higher than 35% among in some countries, will also be slow to rebound. And these high unemployment rates mean residents in these nations have less cash to burn.
Household debt was “unprecedented” in the five years pre-recession, climbing higher than 50% per adult in the U.S., U.K. and France, the AP reported, citing Credit Suisse. In all 10 countries, it climbed 34%. But post recession, debt per adult fell 1% in the four-and-a-half years after 2007, which hasn’t happened “in sync” in such a matter since World War II.
And even as millions more people were unemployed post-recession, wages grew slowly and people spent billions paying down debts, the AP reports. Households in the six biggest economies added $3.3 trillion to their cash holdings in the five years after the financial crisis.
Finally, consumer spending, which accounts for more than 60% of U.S. GDP, rose 1.6% per year, adjusted for inflation, in the five years after the recession. This was half the growth rate before the crisis, and only slightly more than the annual growth in population during the same time, according to the AP, citing PricewaterhouseCoopers.