Consumers would like to spend less, but they are falling further into credit card debt.
Two-thirds of Americans say that the financial crisis has fundamentally changed their view of debt, making them less likely to borrow or spend, according to a new report by Absolute Strategy Research.
A third of respondents to the survey said they plan to pay down their debt in the coming year, and another third said they plan not to take on any new debt.
But even as consumers have become more debt-averse, they have plunged more into debt to pay for essentials. Indeed, credit card debt has been growing at an increasingly higher rate. The rate of increase for credit card debt has risen two-thirds compared to the same period last year, and it has increased 368 percent since two years ago.
Earlier in 2011, Americans started to climb out of the vicious cycle of borrowing and spending, as credit card debt stopped increasing after two consecutive years, but they seem to be falling back into more credit card debt, even as they seem to want to borrow and spend less.
Policymakers hope that consumers will start spending again, so that businesses will be confident enough to invest in new products and hire more workers, bringing the unemployment rate down and spurring economic growth. But a double-dip recession has become increasingly likely, with Paul Krugman putting the likelihood of global recession at 50 percent, as ordinary consumers avoid buying the big-ticket items that could jumpstart the economy.
Recent volatility in the stock market has played some role in shattering consumer confidence, which has plunged to its lowest level in a year and a half. As consumers' retirement accounts have taken a hit because of recent plunges in the stock market, consumers have reportedly felt less wealthy and thus have been less likely to buy expensive products like furniture, appliances, and cars.
Since spending fuels 70 percent of the economy, economists are worried about a negative feedback loop in which less consumer spending and stock market plunges continue to reinforce each other.
"We'll just scare ourselves into a recession," David Kelly, chief market strategist with J.P. Morgan Funds, told the Associated Press.
Nonetheless, since many consumers took on too much debt before the financial crisis, which overburdened them as the economy cratered, it may be a positive sign that consumers have become more watchful of their savings.
While 28 percent of Americans in 2009 said that their income did not cover their spending, now only 13 percent of Americans said that their spending exceeded their earnings, according to the Absolute Strategy Research report.
Similarly, 51 percent of Americans now said they were making ends meet, compared to 35 percent in 2009, and a third of Americans said that their income exceeded their spending.