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)

Tags: , ,

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Wealthcast Media, an affiliate of Ritholtz Wealth Management, receives payment from various entities for advertisements in affiliated podcasts, blogs and emails. Inclusion of such advertisements does not constitute or imply endorsement, sponsorship or recommendation thereof, or any affiliation therewith, by the Content Creator or by Ritholtz Wealth Management or any of its employees. Investments in securities involve the risk of loss. For additional advertisement disclaimers see here: https://www.ritholtzwealth.com/advertising-disclaimers

Please see disclosures here.

What's been said:

Discussions found on the web
  1. lace front wigs commented on Jan 20

    … [Trackback]

    […] Find More on that Topic: thereformedbroker.com/2009/12/12/sp-the-consumer-is-coming-back-but-dont-expect-fireworks/ […]