The Adolescent American: A Closer Look at Consumers and Their Struggle to Grow Up

CHICAGO, Aug. 10 /PRNewswire/ -- View a video featuring Diane Swonk discussing the August issue of Themes on the Economy®. Read this month's issue.

"The pace at which consumers spend is expected to lag overall economic growth and drop below the 3% Post-World War II threshold to which most of us have become accustomed. This will leave many feeling left even further behind by an economy that has already failed them. The wage gap created by lagging educational attainment will be particularly glaring in the absence of easy credit," says Diane Swonk, chief economist of Mesirow Financial.

In her August newsletter, Swonk takes a closer look at the outlook for consumer spending, now that credit is not as easy as it once was, and we are all a little more constrained by what we earn to keep spending going. Special attention is placed on the rate at which we save, and how that will impact spending, including:  

• Real disposable income growth should remain subdued, especially over the summer, but not collapse over the next year.
  • Raises and bonuses, which were either cut or eliminated during the height of the recession, have been somewhat restored.
  • Tax cuts enacted during the recession are expected to be extended at year-end.
  • Transfer payments are expected to fall once current extensions to unemployment insurance run out at the end of the year.
• Inflation is expected to further decelerate, as slack in the economy persists and growth across the developing nations moderates.
• Foreclosures. The surprise was the rise in "strategic foreclosures" – homeowners who opted to default on their underwater mortgages – which rose as the stigma of walking away from mortgage obligations eroded.
• Credit is expected to remain more of a constraint than a stimulant for consumer spending for some time to come.
  Net worth. Home values, which represent the largest portion of net worth for the majority of households, could take another hit this summer, as the support provided by homebuyer tax credits dissipates, and a back log of foreclosures hit the market.
  Saving Rate. The pressure to save rather than spend is likely to intensify in the months to come, given the ongoing constraints on both credit and wealth.

"We appear to have hit a turning point, where consumers have finally realized that they must save more of their income if they ever hope to repay their debts, let alone be able to afford to retire," notes Swonk. "Consumers are expected to abandon, somewhat reluctantly, their adolescent attitudes with regard to debt, and spend more in-line with their incomes as we move forward. This, coupled with a rise in the rate at which we save, suggests that the pace at which we spend will slow, but not collapse in the year ahead."

The August issue of Themes on the Economy® as well as archived issues can be found at mesirowfinancial.com.

Mesirow Financial is a diversified financial services firm headquartered in Chicago. Founded in 1937, it is an independent, employee-owned firm with more than $40 billion in assets under management and 1,200 employees in locations across the country and in London. With expertise in Investment Management, Global Markets, Insurance Services and Consulting, Mesirow Financial strives to meet the financial needs of institutions, public sector entities, corporations and individuals. For more information about Mesirow Financial, visit its Web site at mesirowfinancial.com.

SOURCE Mesirow Financial