Recession Lessons: Why Spending Still Hasn't Rebounded

Recession Lessons: Why Spending Still Hasn't Rebounded

Economic recovery in the wake of the recession is promising—but we aren't quite seeing a full bounce-back.

One reason why? Consumer spending on discretionary expenses, like restaurants, transportation and recreation, is recovering at a fraction of the speed of previous recessions.


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At its lowest, consumer spending dropped 8% from its peak before the recession, according to data presented by economist Jonathan McCarthy of the Federal Reserve Bank of New York. And while the economy has since recovered (consumer spending is now just 3.5% below the peak), spending has never fallen quite this low before—and we're five years out.

On the other hand, Americans are still willing to spend on things like housing and health care (otherwise known as non-discretionary spending). Compared to discretionary spending, non-discretionary spending has stayed relatively stable. In fact, it never fell more than a fraction of a percent from the pre-recession peak.

So what's stopping Americans from opening their wallets—and what will it take for discretionary spending to finally rebound?

McCarthy suggests that many Americans are still fretting about their job prospects and their potential to earn more money. In order to stimulate economic growth, people first need to feel that their financial future is secure.

Do memories of the recession still haunt your spending habits? If you're unsure how to factor in discretionary purchases while staying on track with your money goals, take a tip from LearnVest's One Number budgeting strategy.


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