Better spending power

Economists and others are always looking for indicators for future trends. One indicator suggests consumer finances are vastly improved, thereby setting the stage for faster growth. What is this positive measure? N.C. State University economist Mike Walden answers.

“Well, there are really two related measures here. One is household debt is down, and household wealth is up. But also if you look at spending, this is an amazing statistic. It really surprised me when I looked at it … .  If you look at the percentage of household disposable income that is devoted to three key necessities — spending on food, spending on fuel and spending on financial obligations (i.e., debt payments for things like your car, your mortgage, other things) — that percentage right now … is at a 30-year low. …

“What this means, I think, economically is many households, not all of course, but many households are much better off today financially. Their financial setup has improved tremendously. And this is going to allow them to start spending more down the road. And, of course, we are a consumer-spending-driven economy. Seventy cents out of every dollar is spent by the consumer. So the fact that the spending on those three necessities is so low, I think, is going to open up us to faster economic growth propelled by consumer spending.”