January 03, 2012
The NYT did a piece on the prospects for consumer spending in 2012. It listed a number of reasons why spending would be “tepid.” Actually, spending is not tepid, it is actually quite high relative to disposable income as noted by one of the sources in the article.
In the pre-bubble years, savings averaged more than 8.0 percent of disposable income. The saving rate fell sharply due to the wealth effects associated with the run up of stock prices in the 90s and house prices in the 00s. With this wealth now gone, it is reasonable to expect the savings rate to return to its former level, if not higher.
With a savings rate near 4.0 percent, consumption is relatively strong. There is no obvious reason that it should pick up and many that it should fall back, most notably that the huge baby boom cohorts are approaching retirement with almost no savings.
Comments