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Forecast 2011: Recovery Hinges on Consumer Activity

The recovery may have officially ended in 2009, but businesses are still waiting for a rebound. Consumers will determine when post-recession growth begins.

Phillip M. Perry (November 2010)
(page 3 of 3)
Consumers are also borrowing less. "Three years ago, people were spending their home equity at retailers," says James Dion, president of Dionco Inc. "Then, all of a sudden, that money disappeared. Also, credit card issuers have tightened up credit lines. People who had $2,000 limits before might only have $900 or $1,100 now. As a result, the use of credit cards has dropped dramatically in favor of debit cards and cash."

Ready to Spend
In the long term, consumers refinancing their mortgages will earn more cash to spend as a result of lower debt payments. Low interest rates and minimal inflation - two conditions economists expect to persist through 2011 - are feeding this trend.

The question remains: When will a robust rebound happen? It depends on consumers' confidence in their own balance sheets. "At some point, consumers are going to say, `I have started saving, my finances are in better shape, and now I need to replace my car and buy some new things that I have been avoiding,'" Simson says. "Then demand will be back, and it will be dramatic."
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