Consumers React to Stock Market Decline

Aug. 9 -- The stock market's recent drops have put a crimp in Rhys Berryman's lifestyle.

A 63-year old retiree from Great Falls, Mont., Berryman found that his total retirement savings have been almost cut in half, to $1.5 million from $2.9 million, because of the stock market's decline. Now he and his wife, who normally travel three months out of the year in their RV, will travel only three weeks this year and for shorter distances.

With their discretionary income reduced to $500 a month from about $1,500 a month just a year ago, the couple is also cutting back on everyday expenses like eating out and making home improvements.

But for recent graduate Michael Nelson, the market's doldrums and the soft economy have sent the 22-year-old on a spending spree. Recently hired as a computer programmer in Rockford, Ill., Nelson just bought a used BMW for $4,000 less than its appraised value. He was also able to secure an auto loan at 6.25 percent interest — less than the 8 percent and 9 percent rates paid by his friends who bought cars last year.

As for the stock market, Nelson's been on a buying binge there, too, plowing 20 percent of his income into what he considers bargain-basement prices.

The dramatically different reactions of these consumers reflect the impact that the market malaise has had on the American consumer in recent months. While many economic indicators point to a slowing in consumer spending, others show a consumer who is still pulling out the credit cards despite a sluggish economy.

Consumer Crucial to Economy

Representing two-thirds of the nation's gross domestic product, consumer spending has been one of the pillars keeping the economy steady, even amid the recession declared in the spring of last year.

But lately, some signs that the consumer is staying home and eating Ramen noodles are starting to emerge.

Second-quarter GDP, for example, rose a smaller-than-expected 1.1 percent and the first quarter GDP was revised downward to 5 percent from the previously reported 6.1 percent as consumer spending slowed. Purchases by U.S. residents of goods and services increased only 2.8 percent in the second quarter, compared with an increase of 5.6 percent in the first, according to the Commerce Department.