Consumers Radically Reduce Borrowing In March
Americans put more into their bank accounts and less on their credit cards in March, the Federal Reserve reported this afternoon.
Consumer borrowing dropped 5.2 percent in March compared to the same period in 2008, the fastest drop recorded in 18 years, as Americans hoarded cash to ride out the recession, now in its 17th month.
In dollar terms, the 5.2 percent drop means that Americans put $11.1 billion less on their credit cards in March of this year than last. That's the biggest monthly dollar-drop since 1943, well before the widespread rollout of consumer credit cards.
It also was nearly three times what forecasters were expecting for March.
Generally, such a reduction in spending is considered bad for a U.S. economy that is based on it -- consumer spending accounts for 70 percent of U.S. GDP by most measures.
Much like a sabermatrician who invents a new formula for measuring baseball performance, Skousen has created a stat called "Gross Domestic Expenditures," calculated by adding up total spending in the economy at all stages, not just the measure of the final output, which is GDP.
These include manufacturing expenditures and other business spending, wholesale spending and so forth.
Using Skousen's GDE number, consumer spending accounts for only about 30 percent of the total U.S. output, not 70 percent.
Skousen argues, as a pro-business, Austrian-school economist would, that it is business spending, not consumer spending, that drives the U.S. economy.
Agree or not, it's another way to look at things.
May 7, 2009; 3:29 PM ET
Categories: The Ticker | Tags: consumer credit, credit cards, gross domestic product
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