We're Finally Saving The Economy By Spending Too Much

Back in the early days of the recession, circa 2008, people were nervous about the future, and decided to start saving more of their money instead of just spending it. That brought personal savings rates up to over 5% by last year. But after hearing for months that the recession is over, consumers are apparently starting to believe it — especially when numbers show the economy growing by 3.2%. Savings rates are down to about 2.7%, and consumer spending is up by 0.6% as of March. Unfortunately, incomes are only up 0.3%, so plenty of people may be helping the economy grow by spending more than they earn. Thanks, guys!

So, are you helping the economy by driving yourself into debt? Let’s ask the Washington Post:

Consumer spending makes up about 70 percent of the U.S. economy. Economists are watching consumer spending closely because so far, this has largely been a jobless recovery. … That means that if the recovery is to continue, it will have to be largely based on consumption, not new employment.

If consumer spending continues to increase but personal income does not, that could suggest that people are putting their new purchases on their credit cards, which is troubling.

That’s right. Spend too much, and you’ll be contributing to the next debt bubble (not to mention ruining your own finances). Spend too little, and you’re slowing down the recovery. And, as the Post points out, “economists worry that the promising gains in consumer spending cannot continue while unemployment remains high.” So, if you want a better idea of when the recession will really be over, maybe you should look at the unemployment rate instead of the GDP. That number still stands at close to 10%, and isn’t expected to drop significantly any time this year.

March consumer spending outpaces wage hikes [Washington Post]