Strong Consumer Spending Could Spell Economic Trouble
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What is the main topic discussed in this episode?
This is Your Money Matters from The Wall Street Journal.
Welcome to Your Money Matters. I'm J.R. Whalen in New York. Americans haven't been bashful about spending during this holiday season. The Commerce Department reports spending in November rose 0.6 percent from a month earlier. But their buying mood might set up trouble on the horizon for the U.S. economy. Wall Street Journal Heard on the Street columnist Justin Lahar joins us to explain. So, Justin, consumers having the confidence to spend is certainly better than if they were pessimistic, but there's concern over how their spending stacks up against the personal saving rate.
Yeah. So what's been happening is people have been basically spending more or their spending has been growing faster than their income.
How has consumer spending changed this holiday season and where does the episode start explaining it?
So as a result, the saving rate, the amount of their income that they save has been dropping and it's dropped to two point nine percent last month. That's the lowest since right before the recession started in late 2007. So that's as some might say, that's a lot of consumer exuberance. Yeah, I mean, I don't know if people feel exuberant, but, right, they definitely are spending. And, you know, you can only spend so much and you can only dip into the saving rate so much. So, you know, what it does is it means that there's just not a lot of – there may not be a lot of extra oomph that the economy can get. You know, as opposed to if the saving rate was really high, then if people got excited, then they could spend more.
Now, if they get really excited –
It's hard to spend more. You know, consumer spending accounts for about two-thirds of the U.S. economy. But like you're saying, with this mathematical formula, the consumer can only really do so much.
Yeah. I mean, ultimately, consumer spending can only grow as fast as the economy grows. You can only spend as much money, ultimately, as you make. So, you know, what has to happen is, you know, people either have to make more. That can make spending go up. Or they're going to have to spend at a slower rate.
And that's one thing you point out in your column in The Wall Street Journal, that it'll be up to businesses to step in and fuel the economy. One way to do that is through compensation.
Right. So one thing that we expect is that wages are going to pick up more than they have been picking up. And that's because the unemployment and unemployment rate is so low. The problem is that the unemployment rate has been so low for a while now. And so far, we haven't really seen it. We hear a lot of people complaining about it, talking about how they can't find workers, but we don't really see a lot of wage increases in the data. So maybe with the unemployment rate looking like it's going to go below 4% next year, maybe we're going to start seeing those income gains, and that could feed into higher spending.
Well, we've seen with the signing of the tax bill by President Trump that some companies have stepped up and said we're going to, in some cases, raise the minimum wage or shell out a bonus.
Why could a falling personal saving rate signal trouble for the U.S. economy?
I mean, doing a bonus is not raising wages, but maybe it's down the track in the right direction. It could be. It could be. It's hard to know.
Right. Because a lot of this is sort of promotional.
How much has the saving rate dropped and how does it compare to pre-recession levels?
And, you know, we have to see we're going to have to see the actual data to see that that people are reacting the way they say that they're reacting.
All right, and there's more that businesses can do, and we'll get to that in just a moment. We're speaking with Heard on the Street columnist Justin Lehart, and you're listening to Your Money Matters from The Wall Street Journal. Welcome back, everybody. So, Justin, you feel also that businesses stepping up investment would be a good shot in the arm for the economy.
Yeah, investment is one thing that does add to growth in the economy. So when people are investing, that helps a lot. You have to remember also, ultimately, when you invest in labor-saving devices, that helps you save on labor and grow more. But the initial thing that happens when you invest that money in the new thing is whoever makes the new thing is going to be getting paid more, is going to get hired more.
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Chapters
4 chapters
1
What is the main topic discussed in this episode?
0:02–0:47
2
How has consumer spending changed this holiday season and where does the episode start explaining it?
0:47–2:59
3
Why could a falling personal saving rate signal trouble for the U.S. economy?
2:59–3:09
4
How much has the saving rate dropped and how does it compare to pre-recession levels?
3:09–5:43
Speakers
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