The long slog continues. The feature of the post-crisis economy has been a two-speed recovery. As a group, companies have done extremely well. Corporate profits and cash holdings are at record highs. The stock market has bounced back smartly since the lows of March 2009. But consumers haven't done quite as well.
GDP grew 2% according to the latest estimate. 80% of the growth came from consumers and 25% came from net exports. Government spending contributed nothing and business spending detracted 5%.
Consumers cutting debt is a rational and appropriate reaction to the excesses of the 2002-2008 real estate bubble. Keep in mind, however, that if consumers make up roughly 70% of GDP and they're cutting debt, growth will likely remain low until consumers are confident their personal debt is under control. With the latest GDP estimate coming in at 2% vs forecasts of 2.5%, it does not appear that is the case yet.
