From this decade's relative low of 2% savings rate in 2007, consumers' savings rates are taking the plunge once again, just now dipping below a 4% personal savings rate, inviting comparisons to patterns of the Great Depression. Yet despite all the recent economic and political upheaval, and subsequent drops in confidence, consumers have been surprisingly resilient. For example, retail sales have posted their fifth consecutive monthly increase, small albiet significant.
However, willingness to shop is coming at a cost—a sharp decrease in the savings rate (personal savings as a percentage of disposable personal income), which has displayed a steady decline to 3.6% in September from 5.8% in June 2010. The decline in the savings rate shows that consumers are continuing their spending habits at the cost of their savings buffer and in the midst of extremely high unemployment-- a move that many economists believe is not conducive for strong, long-term economic growth.
Moving into the most important spending period of the year for retail, the holidays, all eyes are on Americans' wallets. During an economic downturn or crisis, Americans naturally pull back on excessive spending in favor of conservative savings, as in the Great Depression. The holiday shopping season will reveal whether or not Americans are ready to spend, as they have been cautiously doing at the expense of personal savings, or if Black Friday will be empty and bleak, as many are speculating against extremely low savings rates. Analysts have pulled back their estimates for fourth quarter economic growth, and anticipate that that growth will rely more on businesses increasing spending on capital investments and equipment, as opposed to a robust comeback in consumer spending.
Sources: Wall Street Journal & CNN Money
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