Personal consumption expenditures growth continues to remain at elevated levels despite lackluster gains in real disposable personal income. Increased consumption yet muted income growth leads to an intriguing question: is the U.S. consumer running on fumes?
In this special report, we delve into the topic of consumption and what is currently supporting consumers’ habits. We analyze the current trends between consumption and income, particularly focusing on the amount Americans are saving and how their confidence, relative to the performance of the economy, impacts their consumption. We disclose any alterations in borrowing, and discuss the sustainability of current consumer behavior in highlighting any potential threats to the pace of consumption. What we are most concerned with today is if the weakness in real disposable personal income is putting more pressure on alternative ways to fund increased consumption. How sustainable is it for consumers to draw from their accumulated wealth, rather than from growth in income, to fund their consumption habits?
Strong Real PCE Growth, Weak Real DPI Growth
Americans reacted to the Great Recession by increasing the saving rate and by deleveraging. The rate of saving, which was at a low of 1.9 percent in July 2005, increased to 8.1 percent by May 2009 as individuals retrenched during the Great Recession. Despite the savings rate reaching as high as 11.0 percent in December 2012, it has come down considerably and printed a rate of just 2.4 percent of disposable personal income (DPI) in December 2017 (Figure 1).1 Now, markets are starting to get concerned that this reduction in the rate of saving is not sustainable, and that the risks for personal consumption expenditures (PCE) during 2018, and for the economy as a whole, have increased considerably.
Figure 1
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