Rising Rates Pinch Consumers

The recent uptick in long-term interest rates may signal that the end of a long period of cheap credit is at hand. That means the economy is humming, but what would higher interest rates mean for consumers?

Government statistics show that consumer spending levels have been higher than income levels for years, prompting economic worrywarts to conclude that an eventual slowdown in consumer spending levels is inevitable. If interest rates make a sustained move to the upside now, that thesis will be put to the test.

"The employment market is healthy, but consumer liquidity, which has been supporting consumer spending growth above the level of income growth, is drying up," says Colin McGranahan, a retail analyst with Sanford C. Bernstein. "A steepening yield curve only accelerates that. It makes me think that this might push down on the consumer spending deceleration button in the coming months." ...