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By New_Deal_democrat December 26, 2013 9:22 am
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Personal savings and spending show US consumer expansion continuing

Once of the long leading indicators for the US economy that I track is the real personal savings rate. This is the percent of income which is being saved, minus the YoY inflation rate. It serves as a measure of how much or how little people think they need to save vs. the price level.  In other words, it is a measure consumer confidence or willingness to take risk.

As show in the graph below, typically as economic expansions progress, the real personal savings rate declines. Usually this is because the first reaction to an increase in inflation is to simply dig deeper into savings, or go further into debt.  As some point, consumers in the aggregate decide they need to retrench, and their savings increase as a recession causes the inflation rate to subside:

Usually when there has been a YoY change in the real personal savings rate of more than 3%, a recession ensues, either quickly or with a several year lag.  We did have such an abrupt decrease in 2010 and 2011, due to the post-recession spike in gas prices.

While we did have a period of weakness, there was no recession.  Instead of suddenly retrenching, consumers were able to cope by digging slightly into accumulated savings, as shown by the below graph of aggregate personal savings:

Due to declining inflation since, however, there has been a gradual increase in the real personal savings rate.  In other words, consumers have become more cautious, but gradually.

The secondary signal that consumer retrenching is reaching the point where an expansion is stalling, is when per capita real retail sales decline (even if real retail sales in the aggregate are still growing).  That isn't happening:

So while $3+ gasoline has impacted consumer wallets since 2011, it hasn't been enough to really knock back the US economy, and there is no suggestion of any such recessionary retrenchment in the immediate future.

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