Schenk to Bankrate: Consumers driven by net worth

MADISON, Wis. (11/18/09)--Economic measurements such as a household's net worth directly impact consumers' behavior more than broader traditional measurements such as gross domestic product (GDP), a Credit Union National Association (CUNA) economist told Bankrate.com Tuesday.

GDP is a measure of the output of goods and services produced in the U.S. The Bureau of Economic Analysis issues a quarterly report on GDP.

"The traditional measure of the economy has been growth in GDP and growth in economic output," Mike Schenk, CUNA vice president of economics and statistics, told Bankrate.

But as yardsticks go, GDP is hard to work with, Bankrate said. The only sure long-term strategy for individuals and the country is the savings model. If everyone is saving and not spending, there may be a temporary setback to the economy. But eventually all of the savers will have the confidence to spend more money, Bankrate added.

"Since the beginning of 2008, households have lost $11 trillion in net worth. That is about the size of the entire U.S. banking industry," Schenk told Bankrate.

"Net worth has declined and declined significantly, and it won't come roaring back--unless you can foresee or forecast significant asset bubbles in the future--in part, because the way it will come back is the old-fashioned way of people setting more aside in their savings accounts and retirement accounts," Schenk concluded.

When consumers eliminate their debt and bolster their savings, the economy proceeds at a much faster pace, Bankratesaid.

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