S&P: The Consumer is Coming Back, But Don't Expect Fireworks

gdp consumer

The chart above demonstrates how consumer spending typically lags GDP.  One of the most gruesome features of our recent downturn has been the sheer depth of the unemployment crisis and how that has led to higher savings rates, leading to the need for businesses to lay off even more employees.

Standard & Poors economists David Wyss and Beth Ann Bovino have a note out saying there could be signs of a breaking of this vicious cycle…

Consumer confidence remains weak, but at least it has improved since its spring low. More importantly, households are spending more than the confidence data would suggest. Worries about losing one’s job are usually the main reason for saving more, and with the number of layoffs declining (as shown in both the Challenger layoff announcements and the initial claims for unemployment insurance), Americans are beginning to spend more. The saving rate dropped back to 4.4% in October, still well above the 1.7% of 2007 but down from the 6.4% May peak or the 8.9% average from 1960-1990. Although the saving rate remains above the recent average (2.5% from 2003-2007), if it stays in its current range, consumers should not be much of a drag on the economy. But neither will they lead the expansion as they did after recent downturns.

The upshot is that the consumer, while still in rough shape and psychologically shell-shocked, may start becoming a non-event either way.  A gradual loosening up in the savings rate probably won’t mean much to the upside, but it won’t be a killer to the downside either.

S&P also updates their 2010-2012 model which is predicting a 10% plus unemployment rate through at least the end of Q2 2010.


An Imperfect ’10  (RatingsDirect – S&P)

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