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What Happened to Saving for a Rainy Day?

According to the Wall Street Journal, U.S. consumer spending rose twice as fast as income in March of 2010 as personal savings dropped to its lowest level in 18 months. The Commerce Department reported, “Consumer spending increased by 0.6% from the prior month, likely lifted by government efforts to spur economic growth, but personal income rose just 0.3% on a weak labor market. As a result, the U.S. saving rate dropped to 2.7%, its lowest level since September 2008.”

In our opinion at Hennion & Walsh, this could signify the beginning of a much needed catalyst for the economic recovery as consumer spending accounts for over 70% of Gross Domestic Product (“GDP”) although it could grow to be a concern if consumer spending increases are at the expense of personal savings when personal incomes do not rise on a commensurate basis. This pattern of consumer leveraging was also evident prior to the most recent recession’s commencement in December of 2007.

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