The savings rate isn’t likely to shoot much higher in the coming months. There’ll be no quick return to the 9% to 12% level common during the 1970s and early 1980s, which would have a devastating effect on consumer spending. Every percentage point increase in the savings rate knocks about $115 billion off consumer spending—by far the biggest driver of the economy and the biggest question mark about the strength of the recovery.
A more gradual rise will simply dampen consumer spending growth, not stifle it. Look for the recent steep incline in the savings rate to flatten out, settling between 7% and 10% over the course of the next few years. A decades-long downtrend hit bottom at 1.2% during the first quarter of last year, before rising a remarkable four percentage points to 5.2% in the second quarter of this year.
A surging stock market during the 1990s followed by a boom in housing prices starting around 2002 encouraged many households to spend just about every dollar of annual income—and then some. Not only did the savings rate plunge, outstanding credit soared. But recent stock market losses and lower housing prices dealt a severe blow to net worth. Combined with persistent concerns about job security, those factors should keep Americans from resuming their profligate ways.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Meanwhile, increased job growth next year should buoy consumer spending, helping to offset the negative impact of consumers socking more money in the bank. By early 2010, businesses should begin hiring again, accounting for modest net job growth. While it won’t be enough to offset growth in the labor force—causing the unemployment rate to continue to climb—the increase in the number of Americans earning paychecks is likely to allow consumer spending to tick somewhat higher.
For weekly updates on topics to improve your business decisionmaking, click here.
-
Investing for Charitable Giving: Discipline Reaps RewardsConsider doing nothing when markets get volatile, rather than shifting your charitable investing strategy in the moment.
-
Feel Free to Disagree, But Here's How to Bridge DifferencesRather than remaining at odds with those who disagree with you or simply shutting them down, here's how to lower the temperature.
-
Europe Faces Economic and Political Headwinds Next YearThe Letter Challenges for Europe: Potential tariffs, high energy prices and more competition from China will weigh on the bloc in 2025.
-
Don't Sleep on Japan's Economic TransformationThe Letter After almost three lost decades, Japan — one of the world's biggest economies — is finally showing signs of life.
-
Kiplinger Outlook: Telecom Companies Brace for Tough TimesThe Letter The telecom industry is entering a new era that threatens profitability. But the coming Trump administration will make it easier for the major players to adjust.
-
Start-ups Trying to (Profitably) Solve the World’s Hardest ProblemsThe Letter More investors are interested in companies working on breakthrough science to tackle huge societal challenges. The field of deep tech has major tailwinds, too.
-
The Big Questions for AR’s FutureThe Letter As Meta shows off a flashy AR prototype, Microsoft quietly stops supporting its own AR headset. The two companies highlight the promise and peril of AR.
-
China's Economy Faces Darkening OutlookThe Letter What the slowdown in China means for U.S. businesses.
-
AI Start-ups Keep Scoring Huge SumsThe Kiplinger Letter Investors continue to make bigger bets on artificial intelligence start-ups, even for small teams with no revenue. Some backers think a startling tech breakthrough is near.
-
Should We Worry About the Slowing U.S. EconomyThe Letter With the labor market cooling off and financial markets turning jittery, just how healthy is the economy right now?
