Consumers remain cautious as energy prices fall

Although the price of oil has fallen over $100 per barrel since reaching record levels this past July and gas costs only about $1.60 per gallon, consumers aren't spending their extra cash. Fears of an increasingly unstable economic climate seem to be causing consumers to save more aggressively.

Increasing unemployment rates and intensive media coverage of layoffs and foreclosures present a grim financial picture. "The average customer out there is saying, 'If I don't have to do it--if I absolutely don't have to do it--I ain't buying it,'" Ken Goldstein, an economist at The Conference Board, a New York nonprofit business group that tracks the economy, tells the Boston Globe.

America’s very low savings rate, however, has come to be considered one of the cracks in the foundation of the country’s financial system. While an increase in consumer savings is very likely to be helpful for the long-term economic conditions, it may make getting out of the recession more difficult.

Growth is closely tied to consumer spending, and when spending decreases, the economy contracts. There is less demand for goods and services and that in turn affects unemployment. In contrast, the current economic crisis illustrates the dangers of excessive spending. Reigning in spending is ultimately likely to make for a sounder financial system.

Gus Faucher, director of macroeconomics at Moody's Economy.com tells the Boston Globe, "We're going to see a different attitude toward debt. I think people are going to be less willing to borrow to finance their consumption."

--Bridget O'Sullivan