On September 15, theTrumpet.com (“Record Earnings—Record Debt”) reported that the personal savings rate was negative for the first time since the Great Depression (excluding the month following 9/11). Now, the personal savings rate has been negative for three months in a row.

Following a revised minus 0.3 percent rate in June, and a revised minus 1.1 percent rate in July, consumers again spent more money than they earned in August, with the personal savings rate at minus 0.7 percent.

Personal income during August also fell by 0.1 percent, as did consumer spending—by 1 percent (Washington Post, October 1). What makes these statistics worrisome is that even though consumer spending decreased proportionately more than personal income, people still spent more than they earned. This indicates people had to dip into savings, sell assets, or take on more debt to maintain their standard of living.

Consumers are finding it increasingly difficult to keep up with their debt.

A record 4.81 percent of credit card accounts were at least a month behind in the second quarter of this year (USA Today, September 28). This number surpasses the prior high, set the previous quarter. Unfortunately, over the short term, things are not looking good for credit-maxed Americans. Many credit card companies have been raising the minimum monthly payments and have been switching to variable interest rates that rise and fall with the short-term federal funds rate. New regulations doubling the minimum payment are also set to take effect this year. This means that a greater and greater portion of income belonging to people with credit card debt will be used to make minimum payments.

Personal bankruptcies also set a record in anticipation of the October 17 change in U.S. bankruptcy law, which tightened the requirements for personal bankruptcy filings. September filings were at all-time highs, averaging approximately 9,000 per day, 50 percent higher than last year. About 1.24 million Americans declared personal bankruptcy this year through September 17. Thirty-seven states have seen the percentage of bankruptcy filings jump by double digits since March.

Swelling energy costs are also starting to build pressure on the American consumer. In fact, the rise in gasoline prices alone is starting to squeeze some.

Any one of the hundreds of thousands of Angelenos or New Yorkers that suffer through two-hour daily commutes will tell you how gas prices are taking a bite out of their bank accounts. As gasoline prices have spiked, so has the use of credit cards to pay for it. People are trying to put off the pain of paying for as long as possible. All across the country, rising gasoline prices have been linked to increased theft. Last year, gas thefts more than doubled over the previous year to $237 million.

Home heating and energy costs, reflecting record-high oil and natural gas prices, will also hurt consumers—this winter, especially.

Higher borrowing costs are also starting to pressure American consumers and small-business entrepreneurs.

The U.S. Federal Reserve has been increasing short-term lending rates since June 2004. Since banks must base their prime lending rates upon the Federal Reserve rate, this has led to higher loan rates. On average, these loans are now at 6.75 percent, the highest in the last four years. These rates are used for many short-term loans, including home equity lines of credit (Startribune.com, September 29).

Declining consumer spending, a negative savings rate and falling personal income bode ill for the U.S. economy.

Consumer spending accounts for two thirds of U.S. economic activity. As consumers continue to feel the pressure of rising energy costs, credit card payments and interest rates, watch for consumer spending to keep dropping. Ultimately, this will lead to recession—and with all the other problems of the economy, it has the potential to be a doozy.

For more explanation on why consumer spending is vital to the American economy, read “The Burden of John Q. Consumer.”