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The recession has American families cleaning up their balance sheets. Households paid off nearly 1 percent of their debt in the third quarter of this fiscal year. For the year, household debt shrunk nearly 1 percent, the first such shrinkage recorded. Credit card balances are shrinking as well, though perhaps because credit card companies aren't lending so easily anymore, and mortgages certainly aren't growing. This household balance sheet repair is the first such showing in more than 50 years.

Despite January's unexpected 1 percent rise in retail sales, Americans are paying off their debts. Reuters reported in November, "Consumer spending excluding autos fell 3.8 percent last month on a seasonally adjusted basis, steeper than the 1.5 percent decline in October." American families increased their savings to 3.6 percent in December, according to Charles Schwab, up from almost zero a year before.

Consumption goes underground

While the uber-consumption of the last 18 years has ended, old habits are hard to break. While people are spending less because they have less, shoppers are still spending what they have.

...

Still, Americans love to shop, and they are finding ways to do so — whether it means cutting back elsewhere or simply avoiding the conspicuous part of "conspicuous consumption." After all, it is addictive (affecting 6 percent of Americans): "We have no money and considerable credit card debt," one parent recently asked financial adviser Suze Orman. "Should we dip into our paltry emergency fund to pay for Christmas for the kids?"

Rather than dipping into emergency savings, some parents are cutting back their spending on themselves. Kristen Hunt didn't want her daughter to think this Christmas was less bountiful than ...

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It Takes More Than a Recession to End Consumption
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February 2009

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