Many Americans cannot save for a rainy day fund

By GREGORY BRESIGER

Last Updated: 3:45 AM, June 19, 2011

Posted: 10:21 PM, June 18, 2011





What happens to the US economy if the middle doesn't hold?

That's the worry behind new data showing that middle-class families are living paycheck to paycheck and that discretionary spending is nonexistent, according to two recent reports by the National Bureau of Economic Research (NBER) and the latest monthly Discover US Spending Monitor.

"We find widespread financial weakness in America: One quarter of Americans report they certainly could not come up with [$2,000] to cope with a financial shock within 30 days," according to the NBER report.


Getty Images
Wallet fatigue: Middle-class consumers’ spending constraints may be the leading cause for plunging retail sales.


Another 19 percent of respondents say they could raise the $2,000 but would be forced to sell a possession or take a payday loan because they don't have the cash, NBER says.

NBER officials said similar surveys are coming to the same conclusion. Two years ago, the Pew Research Center for the People and the Press found 42 percent of respondents saying they agree or mostly agree with the statement that they "often don't have enough money to make ends met."

Running out of cash is also a theme of the May Discover US Spending Monitor. In its latest monthly survey, it found 42.4 percent of respondents say they are running out of money when they pay monthly bills. That's a jump of 2.5 percent from the previous month and the highest rate this year, according to the Discover Monitor.

The middle class and upper-middle class are looking at falling home prices, income raises that fall short of the inflation rate, an unemployment rate that barely moves and a reluctance to dip into savings after the recession, according to respondents.

"The durability of the spending of this very important group is a key factor in judging whether the economy has transitioned from a government-aided recovery into a self-sustaining expansion," said Robert Dye, a senior economist at PNC Financial Services Group.

The NBER report argues that the problem of the cash-poor American is spreading. "We examine the cross-sectional distribution of financial fragility and we show it is not a poor person's problem," according to the report.

That's because the average American's ability to cope with a financial shock is limited, NBER said, and even the seemingly rich are affected.

"It seems somewhat unbelievable that nearly a quarter of households making between $100,000 and $150,000 claim not to be able to raise $2,000 in a month," NBER said. "But this fact may be less shocking when one considers costs of living in urban areas, costs of housing and child care, substantial debt service and other factors."

NBER warns that there is also "a sizeable fraction" of people who have made high salaries, but are nearing retirement without any substantial assets.

Wallet fatigue

General merchandise sales decline from previous month

March: -1.2%
April: -0.6%
May: -3%

Source: US Census Bureau


Source: http://www.nypost.com/p/news/business/not_this_week_1nbBH4qHTgrHjHopaZmqIO#ixzz1PmUscxZF

.