Growth rates in consumer income and spending have diverged

By Sober Look

Consumer spending in the US accelerated in November, boosting projections for the GDP growth in the fourth quarter. While incomes grew as well, the rate of increases from the same period last year has slowed. With confidence improving, consumers have increased spending while wages have not kept up.

YoY % changes. Note: The spring 2008 spike in income is due to the last of the Bush administration’s tax cuts (The Economic Stimulus Act of 2008). The spike late last year is due to income harvesting (dividends and capital gains) in preparation for tax increases taking place 1/2013.

This divergence in the growth rates of spending and income is resulting in declines in personal savings rate.

There is a great deal of debate around whether this slower savings rate is a positive for the US economy in the intermediate to long-term period. With the holiday week upon us, this may be a good time to revisit this debate through a very clever video called “Deck the Halls with Macro Follies”.

Enjoy.