Consumers continue to increase their savings. Here’s the recent behavior. (Note that the first spike, in mid-2008, came from the stimulus checks.)
Is the recent run-up of savings the new trend? Let’s look at more history.
The latest changes looks too “spiky” to be a trend. However, I expect that savings will rise on a sustained basis to about eight percent, at a pace comparable to the decline in the 1990s, of maybe half a percentage point per year.
Why isn’t this the beginning of further growth in the savings rate? I think there will be a bit of a spending relapse because of the accumulation of money in consumers’ pockets.
The decline in spending is NOT due to falling income, but rather due to fear–plus a desire to bump up savings. Given the wild swing in consumer attitudes, I expect spending to increase in the coming months, but not to the exuberant pace of 2005. Call it a moderate rebound, one consistent with a gradual increase in the savings rate.
This sets the stage for economic recovery. Heck, if consumers simply stopped tightening their belts, and held spending level, that would set the stage for recovery.
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