Economic Perspective: Spending and Saving
“Today’s program looks at spending and saving. Mike, many economists, including you, said that the recovery from the Great Recession was going to be slow. You thought that consumers were so battered from the downturn that they would hunker down, become tightwads and squirrel away money in savings. Did this happen, and if so are we now seeing some changes?”
“Well yes to both questions. It did happen. Spending, especially spending on big-ticket items, grew at a snail’s pace immediately after the Recession. The personal savings rate, get this, grew from two percent during the Recession to over 10 percent. So you’re absolutely right. People hunkered down. They didn’t make big-ticket purchases like cars, appliances and homes. They squirreled away money.”
“Now, however, we’re seeing as we’re 10 years away from the Recession people are now coming out of that bunker, and they’re seeing the job market improve. They’re seeing their wages improve. The Recession is still a bad memory, but it’s a more distant memory. We’re seeing people loosen up.”
“We’re seeing people spend more on vehicles. We’re seeing them spend more on cars. We’re seeing them spend more on appliances. What they’re not doing is saving at the same rate. In fact, savings right now rather than being 10 percent is down around four percent, and people are borrowing more.”
“Now right now economists see this as a positive because, I think, borrowing people are more confident. The fact that they’re borrowing and spending is generating growth in the economy. We won’t run into a problem as long as the economy continues to expand, jobs continue to expand and wages grow so people can make those interest payments on the debt. But if something happens to spook the economy and we may be setting us up to go into another recession. Not like the Great Recession, but still a downturn.”
Mike Walden is a William Neal Reynolds Distinguished Professor and Extension Economist in the Department of Agricultural and Resource Economics at North Carolina State University who teaches and writes on personal finance, economic outlook and public policy.