With the intense economic environment of massive job losses and an uncertain stock market, it’s not surprising to learn that people have hunkered down and increased their savings to help weather the storm. In fact, some experts suggest that the savings rate in the United States is at its highest point than it has been in the last 15 years. While that can produce some comfort to citizens that have to find ways to make ends meet in uncertain times, it can affect the stock market by impacting retail sales and investment rates from money that is not being put back into circulation to further spur the economy. This can dampen the recovery and is the nature of the “paradox of thrift,” in that the very thing that helps Americans become better savers is also having a negative impact on business and the stock market too.
A Lack Of Market Confidence
The biggest marker of the turn-around in market confidence is going to be jobs. As long as the possibility of a job loss is eminent in the mind of the consumer, they will turn thriftier and thriftier to help them survive the potential for economic loss in the future, whether that future is real or not. A frugal mindset has clearly settled itself in the mind of the consumer, some of which still have plenty of money to spend right now. However, the constant exposure of bad economic news has made even those people with good jobs lose confidence in the market and future gains.
When Will It All Turn Around?
There are hints that the economy is already starting to turn around, but until the fear in the consumer’s mind is dispelled, these gains might be temporary. There have been increases in Social Security, the minimum wage, and the revenues from the stimulus programs, which are positively impacting the willingness to spend. As consumers become more aware how their thriftiness can also create an unwillingness to add jobs by local businesses in a rough economy, they may find it easier to justify spending for the sake of getting the consumeristic engine back on track. Once this psychological shift takes place, and confidence returns to the market, a new type of economy has the strength to emerge.
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