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Monday, April 02, 2007

WSJ: Subprime Pullback May Crimp Consumer Spending

by Calculated Risk on 4/02/2007 01:54:00 PM

From the WSJ: Subprime Pullback May Crimp Consumer Spending

Will it ... get harder for these consumers to buy cars, shop at the mall and dine out?

... many American families, [especially] subprime borrowers ... have been able to use the combination of rising home prices and easy credit to live beyond their means in recent years as wages have stagnated. That spending has helped to fuel the U.S. economy's growth.

... might force consumers to rein in spending, particularly lower-income Americans, who have piled up debt at a faster clip than their wealthier counterparts in the past decade. That could be a headache for the retailers, restaurateurs and others who depend on their business.
The article suggests that it will be lower-income Americans who cut back on their consumption, and the impact on the economy will be minor. However I think that a majority of MEW (Mortgage Equity Withdrawal) in recent years has been by middle income Americans, and flat or falling housing prices will also impact those borrowers. And middle income Americans will likely cut back on consumption too, even if they have no problem making their house payments.