The savings rate is going up during an economic expansion. Why does that matter? Usually, Americans will save more when they’re coming out of the backside of a recession. This happens because they’re trying to restore their balance sheet and get their debt down because there’s still a little bit nervousness coming out of the backside of a poor economy. Historically, the savings cycle in the United States is that when you’re coming out of the backside of a poor economy or recession savings rates tend to go up. Also, when you have an economic expansion, historically, savings rates tend to go down because people are feeling more exuberant. They’re not really worried about their jobs and consumer spending usually would go up in a cycle like that and the savings rate would drop.
What’s been highly unusual about this expansion is that we’ve been expanding in the economy for about 10 years now on the backside of the financial crisis in 2008. However, the savings rate in the United States has risen markedly, even though the economy is improving. If you look at that data over the last 7 months in 2019 our savings rate is about 8.2%. That’s sort of an unprecedented savings rate in an economic expansion. Why is that happening? Well, one reason for this is that the population is aging so you have a lot more people closing in on retirement and they’re kind of “gunning it” a little bit while the economy is good. Even if you extract that factor out, the savings rate is going up a good bit anyway.
Corporate & Consumer
What you’ll find with this savings growth on the corporate side is that most of the tax cut that we recently had has been spent in terms of capital expenditure on equipment, because, the acceleration schedules are better and very favorable. Where the savings rate is mostly going up is on the consumer side and it pretty much looks like it consumers have saved nearly all of that. Historically, they would spend it. So, this is unusual territory for us, but it’s good in the United States and good for your money because at some point out into the future, whenever that is, we will have some level of recession. The savings rate that’s been built up over this good cycle will really help us because if someone for example is laid off from a job or taking care of an aging parent their savings are good and they will still be spending. So, we’ve built in this spending cushion underneath the economy with this rising savings rate that we normally haven’t had. When we eventually hit that next recession we’re going to have more money to spend and remember markets are 70% consumer driven. So, if you have people going into stores and going online and spending, the economy stays propped up.
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