Hampel to Bloomberg: Consumer spending will go negative

WASHINGTON (7/18/08)--As the continuing U.S. housing crisis is leading more Americans to save rather than spend, consumer spending will soon head into negative territory, Bill Hampel, chief economist at the Credit Union National Association, told Blooomberg Wednesday.

Spending will decline because homeowners can no longer borrow cash by using rising real estate value as collateral, the article said.

Also, lenders will issue 53% less purchase-mortgages in 2008 compared with 2006, which will impede home sales and slow down a housing recovery, Guy Cecala, publisher of industry newsletter Inside Mortgage Finance, told Bloomberg .

U.S. consumers borrowed $837.5 billion in 2006, according to a report by former Federal Reserve Chairman Alan Greenspan and Senior Fed Economist James Kennedy, Bloomberg reported.

While rising 7.5% since the beginning of last year, consumer spending will drop into negative territory after Americans use up their tax rebate checks this summer, Hampel told Bloomberg.

courtesy of cuna.org