Spending Down in January

Posted by: Henry B. | Jan 13,2008


This week the November numbers for debt were released showing a huge increase over previous months, nearly double what was expected.  New figures released the same week show that spending in January is down significantly.  If my local mall is any signifier, this is definitely the case: the place was like a ghost town yesterday (I was taking my daughter to ballet, not buying anything).

This happens every year as people are still reeling from Christmas purchases and still have plenty of new gadgets to play with from the holiday season.  I should think, though, that this year is going to be different.  It’s not just that people are going to keep resolutions early in the year and start spending wildly later on.  With all the barrage of talk about a recession and the credit crisis, it would not be surprising if the low spending numbers continue.  Of course, the low spending numbers could spur on a recession ever faster, but it’s a pretty logical response to a struggling economy.  

Another response, which is less personally responsible, is buying on credit.  What people do is try and keep their savings intact by spending on credit today while leaving their savings account alone.  In this way, they think they can ride out the recession on credit and have savings left over when it’s all over.  This is an obvious bad move.  The true antidote is to cut back on your spending entirely – credit and cash.  Spending on credit is going drain your savings on the back end so this justification makes little sense.  

It seems odd to advocate for people to save their money rather than spend it, while at the same time warning of a recession, as they are two sides of the same coin.  What would be good for the economy is if people were spending like crazy.  I can’t quite advocate that because even if that would be healthy for the economy, it’s not quite as healthy for your economic present or future.  That’s the trouble with a recession: you’re damned if you do, damned if you don’t.  But look at it this way: the more you save, the more you’ll be able to spend at a later date, which will indeed spur on economic growth.  

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