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Jenny Heinzen York

When bad news is good

November 8, 2012

The bad news: There's a rise in American household debt.
The good news: That's actually good news.
This, according to an Oct. 26 article by The New York Times. The lead: "For the first time since the Great Recession hit, American households are taking on more debt than they are shedding, an epochal shift that might augur a more resilient recovery."
In some ways it feels counter-intuitive (isn't more saving generally better, after all? And does anyone really need more debt?), but it's a sign of confidence in the economy overall. Consumer debt dropped sharply starting in 2007, as the Americans who could afford to started paying down their debts to make their overall financial outlook better. Once consumers feel less of a need to pay down existing debt, they are much more likely to start spending that money in other areas, the article said.
In fact, consumer confidence reached a four-year high in October, and consumer spending figures just released showed that shoppers spent more in September than analysts had expected - an increase of .8% over August vs. the forecasted .6%. Third quarter GDP numbers were also better than expected.