by Laura Conaway

The LA Times has found a key to the economic recovery, and it's in your pocket: "Savers need to resume buying habits to aid recovery, experts say." Consumer spending amounts to two thirds of the overall economy, and yet spending is the last thing on many consumers' minds. From the newspaper:

When American Express asked a sampling of 2,032 people late last month what they would do if they found $500, the answers were like a pitcher of ice water in the face of retailers. Survey respondents were offered a list of possible spending choices that included splurging at a restaurant, going on a shopping spree and taking a trip.

But a mere 10% or fewer marked one of those items. Most went down the list and checked off paying regular bills, reducing credit card debt or simply saving the money.

An American Express spokesperson tells the paper we're seeing unprecedented discipline on the part of consumers. And then there's the factor of pure fear.

 

With economists predicting unemployment will top 10 percent soon and stay above 9 percent through 2010, who's in the mood to spend much on anything? Last week, the Federal Reserve found that Americans are carrying 26 percent more in debt than they enjoy in disposable income. We won't reach a one-to-one ratio until 2018, the Fed predicts, and then only if we raise the savings rate from 4.5 percent to 10 percent.

It's real push-pull effect, as Federal Reserve Bank of San Francisco president Janet L. Yellen said in a speech last week:

An increase in saving should ultimately support the economy's capacity to produce and grow by channeling resources from consumption to investment. And higher investment is the key to greater productivity and faster growth in living standards. But the transition could be painful if subpar growth in consumer spending holds back the pace of economic recovery.

Yellen says we may be looking at "the start of a new era for consumers following the traumatic financial blows they have endured."