Is thrift making a comeback?
December 26, 2008 – 5:46 pm
CR notes that the savings rate (measured as a percentage of disposable income) is starting to recover:
It looks like savings from lower gasoline prices is showing up as savings - as opposed to other consumption - and this process of increasing savings is a necessary step towards restoring healthy household balance sheets.
See his post for a nifty chart of the emerging recovery in savings.
At the same time, retail sales, particularly for “luxury” goods including jewelry, are getting clobbered. According to Bloomberg:
Consumers spent at least 20 percent less on women’s clothing, electronics and jewelry during November and December, resulting in what may be the biggest holiday-shopping sales decline in four decades.“It’s been difficult, much more difficult than anyone expected,” Gilbert Harrison, chairman and chief executive officer of retail advisory firm Financo Inc… Consumers “will spend on necessities, they’ll spend on what they need, but they’re being very particular in what they’ll buy.”
And the WSJ notes that even lottery ticket sales are down:
The sour economy is striking the one source of government financing that had been widely regarded as recession-proof: lotteries.
Across the U.S., many state lotteries are reporting hefty declines, with ticket sales down nearly 10% in California and more than 4% in Texas over the past few months. In good years, these lotteries have turned over more than $1 billion apiece to education programs, the most common lottery beneficiaries.
Consumption must decline for savings to increase. It will be painful for the economy, 70% of which is still driven by consumer spending, but increased savings are the only path to sustainable economic recovery.
Posted in Economy |
3 Responses to “Is thrift making a comeback?”
this is the most intelligent thing I’ve heard in a long time. NO bail-out package or stimulus package will ever give us a an economic recovery until americans start saving more and spending less.
Someone send a memo to our political leader and pray that they get a clue.
By matt on Dec 26, 2008
The US consumes 7% of GDP more than it produces as measured by adding the fiscal+trade deficits and dividing by GDP. The most natural way to close this gap would be to devalue the currency, thereby making it costly for people to consume. The ugly fact is likely to cause social unrest is that rising prices through a devalued currency will not affect all members of the economy equally. Those towards the upper end will cut consumption little to none, while those at the bottom will cut drastically. Instead of a 7% cut across the board you will have a disproportionate burden of consumption cuts carried by those least able to cut. We will have a new segment of our economy who works full time, but can’t afford a car, lives multiple families to a roof, and buys little other than food, fuel and housing. All this so that the investor class does not have to realize gambling losses.
By Josh Dowlut on Dec 26, 2008
Americans have a short memory. I wouldn’t bet on increased savings for very long. Consumption is addictive!
By GloomBoom.com on Dec 27, 2008