Consumers Continue to Spend Rather Than Save

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Tuesday, 01 March 2011 04:32

The Washington Post told readers that "consumers are sitting on their pocketbooks," in reference to the 5.8 percent savings rate reported for January. In fact, this savings rate is well below the average for the 50s, 60s, 70s, and 80s. The wealth effect from the stock bubble in the 90s and the housing bubble in the 00s depressed saving rates in these decades.

 

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With the housing bubble now finishing its deflation we should expect the saving rate to rise back to its historical level. The alternative would imply that workers will have much less money for their retirement relative to their income in their working years.