Report Urges U.S. Consumers to Tighten Belt

U.S. consumers need to spend less and save more to help narrow their country’s high trade and government budget deficits, the Organization for Economic Cooperation and Development said today.

But belt-tightening should not be so severe as to risk a recession, the 24-nation economic affairs “think tank” said in its latest survey on the U.S. economy.

Household savings had to rise to provide enough American, rather than foreign, cash for government and company borrowing. But they must not return too fast to the sort of high levels seen in the 1970s since too sharp a cut in spending would risk halting the expansion of the world’s biggest economy.

“Given the nature of the (government and trade) imbalances and the sheer size of the U.S. economy, an increase in domestic saving is clearly crucial, not only for a soft landing of the U.S. economy but also for maintaining stable world economic conditions,” the OECD said. Personal savings are down nearly 6% since the end of the 1970s.

The report, which appeared just over a week before the 24-nation OECD’s biannual global review, was its first assessment of the United States’ economic performance for 18 months. It was based on data collected up until the end of April.

Five months after the crash on Wall Street on Oct. 19, American households still faced a $450-billion cut in the value of their investments. But although this was widely expected to brake consumer spending sharply, this did not occur, the OECD said.