Saving on the Rise, Says BofA
Bank of America (BofA) is putting investors on notice that it expects the U.S. economy to slow down significantly, citing the “lower trend” for consumer spending.
The bank hoards data that it analyzes to draw conclusions about the state of consumer finances. What it has noticed is that most people are better off than they were a few years ago, but that those same people aren’t necessarily spending at the same levels that they used to.
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This change in consumer behavior is central to BofA’s outlook for the near to medium term. (Source: “BofA Explains Why US Consumers Are Spending Less, Saving More,” Zero Hedge, October 24, 2016.)
The bank’s researchers point to three pivotal facts to support their case that consumers are less prone to shopping sprees. First, there is the fact that household wealth as a percentage of disposable income is back to pre-recession levels. That means people are better off, financially.
The second factor is rock-bottom interest rates. Even after a rate hike in December 2015, interest rates are still closer to zero than at any time in history, meaning there has never been a better time to be a borrower. Fresh credit has never been as cheap as it has been in the post-crisis era.
And finally, initial jobless claims haven’t been this weak since 1973.
When viewed together, these three factors paint a grim picture of the U.S. economy. Add in the fact that U.S. consumer spending has averaged a growth rate of just two percent since the financial crisis, and it becomes a downright nightmare.
Consumer spending used to be more than double than that in the decade before the crisis, meaning the economy has undergone a structural change as a result of the recession. BofA analysts think they have figured out how that change is manifesting itself.
They point to the savings rate, which, averaged over four quarters, reached 5.9% in the last six months. To put it simply: consumers learned the lesson of financial responsibility in 2008.
They aren’t spending as much as they could, because they are afraid of overextending themselves. Rather than living paycheck-to-paycheck, eroding their savings, or else borrowing to spend, American consumers are exercising a little more restraint in satiating their desires.
