WHAT are America’s consumers up to? When the plunging oil price made petrol (gasoline) cheap, economists expected them to head to the shops and spend more. But growth failed to pick up, causing a rethink. Data released on January 29th showed that the economy grew by just 0.7% (annualised) in the final quarter of 2015, with slowing consumption partly to blame.
Now many analysts are claiming that consumers have saved the fuel-price windfall. The reality, though, is more nuanced. Americans—though more cautious since the financial crisis—have spent most of their recent income gains. And consumer spending continues to drive growth.
In 2014 consumers spent an average of $2,500, or 4.2% of their income after tax, on petrol. A year later refilling the tank had become almost a third cheaper. That gave households a windfall of about $650, or 1.1% of their 2014 income. Rising employment and modest wage growth chipped in to boost their real (ie, inflation-adjusted) income by 2.7%.
Consumers did put some of those gains in their piggy-banks. The savings rate rose from 4.8% in 2014 to 5.2% in 2015. In December it was 5.5%, the...Continue reading
Source: Business and finance http://ift.tt/1SvpfYw
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