Prior to 2007, we were on an unsustainable tide of rising consumer spending fueled by home price appreciation which simply could not continue. What would be the ideal path for the consumer in 2007? We’d like to see rising income, which means no recession. We would NOT like to see consumers suddenly stop spending, because that would trigger a recession. However, we want consumers to gradually adjust to the new reality and slowly grow their saving rate by spending less than that earn. That would be ideal. Well, welcome to the reality of the ideal consumer behavior.
Consumers are growing their spending (red line above zero), but not as fast as their incomes are growing (blue line). This is gradually pushing up the savings rate.
That’s about the best that we could hope for. Another reason not to expect a recession.
Business planning implications: look for consumer spending to continue growing at a moderate pace.
(By the way, if you still think we have a savings crisis, I have a paper debunking that notion. Send a blank email to Savings@ConerlyConsulting.com and my autoresponder will automatically shoot you the paper.)