CHICAGO, Aug. 3, 2012 /PRNewswire/ -- Harris Private Bank, part of BMO Financial Group, released a report which found that, while incomes in the U.S. rose slightly in June 2012, consumer spending stagnated, suggesting Americans are using their earnings to increase their savings and pay down household debt.
This marks a reversal from consumer trends seen in the last decade. According to Jack Ablin, Chief Investment Officer, Harris Private Bank, the trend towards saving more and spending less could have a negative impact on the growth of the economy.
"Americans have taken to saving more and reducing their debt load and this may be causing a 'Paradox of Thrift' in the U.S. economy," said Ablin. "This paradox states that, while pinching pennies works on the individual level, it has a disastrous impact on the economy if everyone does so at the same time. If we all save more money, then aggregate demand will fall and will, in turn, lower total savings in the population, because of the decrease in consumption and economic growth."
The report suggests that the trend toward saving and debt reduction will continue. This could put downward pressure on domestic growth for the remainder of 2012.
Mr. Ablin also noted that while the economy grew slightly in the second quarter of 2012, employment numbers were failing to keep up with the pace of new entrants into the labor force.
The latest BMO Market Update also revealed:
- Americans are now taking on less debt than they did a decade ago
- Consumption, which accounts for more than two-thirds of domestic economic activity, was unchanged in June, falling short of economists' predicted 0.1 percent increase
- Income rose 0.5 percent for the month, pushing the nation's savings rate to 4.4 percent - its highest level in a year
- The number of jobs created from April to June this year was about one-third of those created between January and March 2012
About BMO Financial Group
Established in 1817 as Bank of Montreal, BMO Financial Group is a highly-diversified North American financial services organization. With total assets of $525 billion as at April 30, 2012, and more than 46,000 employees, BMO Financial Group provides a broad range of retail banking, wealth management and investment banking products and solutions.
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SOURCE BMO Financial Group