Here’s some more good news on the US consumer. Citi’s Tobias Levkovich shows us that Americans weren’t as spend-crazy as some believe in recent years. In fact, they actually spent less than their disposable income from 2002 – 2007.
Citi checks this conclusion from a few different angles. Personal outlays, another measure of spending, also remained below disposable income over the period. Total bank deposits grew from 2002 – 2007 as well.
Even consumer spending growth rates don’t line up with the idea of Americans overspending. Growth of Real Consumer Outlays (the black dotted line) pretty much tracked disposable income, as shown below. If the American consumer had predominantly spent beyond his means, (presumably using home equity extraction as an ATM) then these consumer outlays should have been up near the red line, shown below.
Thus while certain Americans surely spent well beyond their means, and probably provided a lot of anecdotes to fuel a spend-crazy American image, we shouldn’t write off the US consumer in aggregate as overspent. Obviously some of the glitz will be gone going forward, but that doesn’t mean Americans will stop wanting to live the good life.
The frivolous consumer will not turn into the frugal one, but he will change. A shift from conspicuous consumption to more reasoned purchasing seems to be a rational outcome of the past decade as household wealth measures have exhibited far greater variability than seen the past. Accordingly, a return to more moderate consumer behaviour tied to labour-derived income, similar to the generation of the 1950s through the 1970s may return Americans to the “Old” Normal.
(Charts & excerpt via Citi’s “The Old Normal” by Tobias Levkovich, 25 August 2009)
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