The Oregon Biz Report - Business News from Oregon

Read about accutane journal moderate acne here

Savings Will Soon Drive Increased Spending

July 2, 2009

By Bill Conerly, Oregon Economist
, Conerly Consulting LLC

I’ve been saying that consumer spending would soon increase.  It has not happened yet, but consumers are now in position to get going.  The key concept is that consumers have not been income constrained, as a group.  In the aggregate, they are simply scared.  They have the income to spend more, but they choose not to.  Here’s the month-by-month changes in disposable income and spending since last September (when the economy really started to tank):

Late last year, incomes were down sharply (the orange columns) but spending was only down a little.  So far this year, there have been significant income gains, but without spending gains.  So it is absolutely wrong to say that people have cut back on their spending because they don’t have the money to spend.  Certainly some people are in that condition, but not the aggregate mass of consumers.

As a result, the savings rate has risen sharply:

My look at long-run history (see this post) leads me to think that consumers will get back to savings of 8 to 10 percent of disposable income.  Here are two ways to get there: continue recent patterns of saving all income gains for another four or five months, then spend the bulk of the income gains.  That would add a good push to consumer spending, and thus the economy.

The second approach, which I think is more likely, is for the savings rate to come down a bit from the latest spike, like down to three or four percent.  Then consumers would gradually ramp it up to the 8 to 10 percent range.  If this happens, then spending growth will outpace income growth for a few months.  This seems to be how past long-term changes in savings have occurred.  This scenario is very positive for the economy in the next six months.

Print This Post Print This Post    Email This Post Email This Post

Discuss this article

John July 2, 2009

Could be that people who still have their jobs are trying to give themselves a buffer just in cast they become one of the many who are losing their jobs. Smart move.

Leave a Reply

Your email address will not be published. Required fields are marked *

Please answer the following question to confirm that you are a real person: *

Top Business News


Top Natural Resource News


Top Faith News


Copyright © 2019, OregonReport. All Rights Reserved. | Terms of Use - Copyright - Legal Policy | Contact Oregon Report

--> --> -->