Wednesday, 6 March 2013

The U.S., the Consumer Spending Nation

Following a large increase in personal income and savings in December last year, the U.S. consumer quickly returned to its old spending habit of spending nearly all disposable income in January as the personal savings rate for the month dropped to 2.40%.

The personal savings rate briefly hit 6% plus during the last couple of months in 2008 and in January 2009 (during the "credit crunch"), but it soon returned to a level below its long term average since 1973 of 6.36%. Since 2010 the average personal savings rate is now a dismal 4.37%.

The U.S. consumer, and hence the U.S. economy (as consumer spending represents about 70% of GDP), is a fragile one indeed and is clearly dependent on higher incomes and more credit to increase spending further. The buffer for a rainy day is small indeed.

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