All the QE in the world, and still job growth is anemic, inflation is weak, and consumers are pulling in their spending to try and build up their savings. See: Where have all the consumers gone?
The household savings rate jumped from 4.5 percent in November to 5.8 percent in February.
Savings will probably continue to climb as consumers, who earlier lacked the money to save, use their energy windfall to replenish savings and reduce debt. Baby boomers were negative savers in the 1980s as they established households and spent heavily on cars and home furnishings. Their low-saving habits persisted into middle age, and now they must save with a vengeance or work until they die.
The recent weakness in retail sales also may be the result of intensifying deflation. Retail prices were down 3 percent in February from a year earlier, according to the U.S. Commerce Department. Consumers may be adopting the deflationary mindset that has plagued Japan for two decades. Japanese consumers are trained to wait for still-lower prices before buying. Meanwhile, inventories and excess capacity mount, forcing prices down further. That confirms consumers’ suspicions, so they wait for still-lower prices. The result has been slow or zero economic growth since the early 1990s.
…History shows that when times are tough, U.S. consumers increase, rather than decrease, their savings. Plummeting energy prices are providing the extra wherewithal. Investors who anticipated purchasing-power gains would lead to greater consumer spending must be sadly disappointed.
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