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Skittish buyers become savers Incomes may be inching up, but Americans are saving more instead of spending --- a trend that could threaten the increasingly fragile recovery. Since business investment crashed three years ago, consumers have carried the economy. "If we see the slowdown on the consumer side, when there's no business spending, then we have no growth whatsoever," said economist Campbell Harvey of Duke University. "But consumers had driven savings to record lows, and enough is enough." Even Americans with jobs worry about the future, their confidence clouded by war, debt and a shaky job market. "It's an economic cautionary thing," said Mark Scott, 37, of Atlanta, who said he started trimming back at the end of the holidays. "Things are going well, but you try to hold on to as much as you can. I just saw a new comforter and thought, I'd love to have that. But then I thought, I don't need a new comforter." The plastic stayed in his pocket. Americans say their finances are at their worst in more than a decade, said Richard Curtin, director of the University of Michigan survey of consumers. Released Friday, the monthly Michigan survey showed slight improvement in overall sentiment, but nearly as many consumers reported income declines as reported income gains. And anxiety is growing, Curtin said. "Consumers expected job losses to continue to mount during the months ahead," he said. But spending has been largely bridled by concerns about war and, with luck, those worries are temporary, said Rajeev Dhawan, director of the forecasting center at Georgia State. "People are just being very cautious. Now, if income stalls --- that is a very serious problem." Income growth has slowed, but it remains strong. Personal incomes were up 0.3 percent last month, the seventh straight month of solid improvement, the Commerce Department reported Friday. Much of that growth came in benefits, not fatter paychecks. Gains in disposable income and real [inflation-adjusted] income --- measures that reflect buying power --- were more modest. Consumer spending was unchanged for the second month in a row. Meanwhile, the saving rate grew to its highest level since November: 4 percent, up from zero two years ago. A decade ago, Americans were saving at an 8 percent pace, and a return to that rate could badly wound the economy. Some economists say 8 percent is more typical --- and more likely, given the pace of foreclosures, bankruptcy filings and credit card delinquencies. American savings have to rise, said Dimitri Papadimitriou, president of the Levy Institute in New York. "For us, these numbers are confirmation of what we have been saying," he said. With debt high and the trade gap surging, only massive stimulus from the government can spur the economy, he said. Yet on the plus side, consumer purchases did not drop off a cliff last week the way they did at the start of the first Gulf War in 1991. War's onset, in fact, brought stock market gains and a dramatic drop in the price of oil. According to one formula, chances for recovery brightened slightly: Six of seven leading indicators were up last week, according to the Economic Cycle Research Institute. Nevertheless, new jobless claims hover at recession levels while worried companies scan anemic sales growth and look for ways to cut costs. Earnings releases next week will offer meager hope for new hiring soon, said Lynn Reaser, chief economist for Banc of America Capital Management.
"Brace for drab or even bleak reports," she said.
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