Watch For Savings Rate to Drop Off - The Sign Consumers Are Spending Enough to Sustain the Recovery
Following most recessions, consumers continue to increase their savings for some months to rebuild their buffer.
Since the 1960s, with an exception in 2002, they waited about 9 to 18 months before they reduced their contributions to savings and spent more in the marketplace.
So, when do you build up inventory expecting demand to surge? In late 1997 and 2002 after the recession, we saw different pattern where families refinanced their homes to draw cash out to fund their spending.
The expectation was that your house was your bank and ATM.
This anomaly to the historical pattern is unlikely to be seen again for generations - after the drop in housing prices, that bank has closed.
The question is will the consumer return to a pattern of rebuilding their buffer first? The end of a recession is marked by a significant increase in spending, in Personal Consumption Expenditures (PCE).
On the other hand, the personal savings rate had already increased once we realized a recession was imminent.
So we start preparing for the slowdown, ride it out and then start spending again when we are confident our earnings are not threatened and our buffer has been replenished.
The savings rate shot up during most recessions and peaked about six months to eighteen months later.
When the savings rate peaked and begins to decrease, we spent more on non essential purchases.
We can make a few general observations from the historical patterns:
4%.
I think we are going to return to the spending/savings pattern evident prior to 1995.
Therefore the decision to build inventories anticipating the consumer is returning to the market quickly should be made carefully.
The 1974-75 recession had many characteristics of the Great Recession, and it was a full 18 months from the point people began spending to mark the end of the recession to when they had rebuilt their buffer and were confident they could spend on non essentials.
Since the 1960s, with an exception in 2002, they waited about 9 to 18 months before they reduced their contributions to savings and spent more in the marketplace.
So, when do you build up inventory expecting demand to surge? In late 1997 and 2002 after the recession, we saw different pattern where families refinanced their homes to draw cash out to fund their spending.
The expectation was that your house was your bank and ATM.
This anomaly to the historical pattern is unlikely to be seen again for generations - after the drop in housing prices, that bank has closed.
The question is will the consumer return to a pattern of rebuilding their buffer first? The end of a recession is marked by a significant increase in spending, in Personal Consumption Expenditures (PCE).
On the other hand, the personal savings rate had already increased once we realized a recession was imminent.
So we start preparing for the slowdown, ride it out and then start spending again when we are confident our earnings are not threatened and our buffer has been replenished.
The savings rate shot up during most recessions and peaked about six months to eighteen months later.
When the savings rate peaked and begins to decrease, we spent more on non essential purchases.
We can make a few general observations from the historical patterns:
- The Great Recession has been so dramatic that we can expect many families had to use savings and as we recover, it will take longer to rebuild buffers.
- Once the savings rate drops off we can assume that families are confident they can begin to spend beyond essentials.
- It is very unlikely that folks can return to accessing equity in their homes to draw cash out to fund spending.
4%.
I think we are going to return to the spending/savings pattern evident prior to 1995.
Therefore the decision to build inventories anticipating the consumer is returning to the market quickly should be made carefully.
The 1974-75 recession had many characteristics of the Great Recession, and it was a full 18 months from the point people began spending to mark the end of the recession to when they had rebuilt their buffer and were confident they could spend on non essentials.
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