Consumer Spending and Income: Looking Responsible

I’m seeing some responsibility on the part of our much-maligned consumers.  This year, they are not growing their spending as fast as their incomes are rising.

Look at the right-hand side of the chart, which shows data for 2007.  The blue line (income growth) is well above the red line (spending growth).  This is the way we are correcting past overspending.  The good news is that consumers are not shutting down entirely–which would trigger a recession–but instead are gradually adjusting their behavior to the reality of the current environment.  That reality, for those of you who are really clueless, is that you cannot depend on your home’s appreciation to fund your spending.

Business Planning Implications:  We should not expect consumers to suddenly return to their high-spending-growth ways, but neither should we worry about them suddenly living like monks.