Following last year’s widely-publicized plunge in gasoline prices, a lot of economists were optimistic we could be on the brink of a new boom in consumer spending, something that would be especially bullish as personal consumption accounts for nearly 70% of the US economy.
So far, that just hasn’t been the case.
Instead, consumers appear to be putting away those savings in what we are now seeing as a surging personal saving rate.
“It looks like they are waiting for Spring, as they continue to bank almost all their paychecks during this cold winter where most did not venture outside,” Bank of Tokyo-Mitsubishi’s Chris Rupkey said. “Remarkable really, hard to explain with savings rates averaging 4.5% September/October/November, jumping to 4.9% December, 5.5% January and now today 5.8% in February.”
The report also showed that personal spending climbed by just 0.1% in March, with inflation-adjusted spending unexpectedly falling by 0.1%.
“The big surprise in the spending data, though, is in services, where real spending rose only 0.1%,” Pantheon Macroeconomics noted. “This means either that the surge in spending on utility energy services – thanks to the cold weather – was smaller than implied by the utility production data, or, more likely, that spending on other services was very weak. The detailed data are not yet available.”
This puts more pressure on America to spend in the coming months.
“Unless the March spending figures are extremely robust, it will be difficult for personal consumption to match the heady pace of growth logged in the fourth quarter, and in turn, the overall pace of expansion in the economy is likely to decelerate as well,” Bloomberg economists Carl Riccadonna and Josh Wright said.
Riccadonna and Wright, however, were optimistic that the jump in saving rate “was likely due to snowed-in shoppers more so than a decision among households to spend less of their paychecks, so this should unwind in the March-April data.”
While some economists are not so hopeful, most economists remain optimistic.
“Households are still flush with the money saved from the big drop-off in gasoline prices and, with the labour market still on fire, incomes should continue to increase at a solid pace,” Capital Economics’ Paul Ashworth said. “That provides the scope for a big gain in consumption in the second quarter.”
“One thing’s for certain, the consumer has substantial firepower and is likely to go on quite a shopping spree in coming months as the economy thaws and we move into Spring,” Rupkey said.
“There will be a better tomorrow. The economy will pick up in the Spring. Bet on it.”