The following charts shows the percentage change in personal income, personal disposable income, and personal consumption expenditures for the past five months. Consumer spending rose 0.2% last month, which shadows the 0.3% change anticipated from Reuters' analysts.
Private wage and salary disbursements also increased by $6.3 billion in December, a 75% decrease from the $25.1 billion figure reported in November. The personal savings rate increased to 4.8% in December from 4.5% in November. The following graph shows the monthly personal savings rate as a percentage of disposable income.
This chart suggests that the personal savings rate is stabilizing within the 4.6% to 5.0% range, well above the trend in the last decade as shown by the following chart.
During the last recovery from the tech-bust in early 2000s, personal savings rate averaged around 3.5%. Since World War II, consumer spending has been the backbone to our past economic growth. Consumer expenditures rate appears to be stabilizing at a rate below historical trends. If the personal savings rate does not retreat back to historical norms, which majority of experts believe it will not, further pressure will be put on businesses to get the economy back on track. The effects of the “Great Recession” are still becoming apparent, but one thing is for sure, Americans’ consumer behavior has changed to a more frugal buyer, at least for the short term.
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