Against a historically low growth environment, the consumer stands out as the engine of the U.S. economy. Consumption accounts for 69% of U.S. growth and is supporting most aggregate demand and revenue generation in the economy.9
We will be watching: The household savings rate shows savings as a share of personal disposable income. Now beyond the lows seen in the 1991–2001 expansion, it is closing in on all-time lows seen in 2005. The consumer remains a vital, positive contributor to economic growth. But sluggish wage growth has caused consumers to finance spending by dipping into savings. Positives such as a tight labor market and solid equity market performance are still providing supports for the consumer. But the disappearing pool of savings could cause consumption growth to face headwinds in 2018.
Risks to our view: Consumers may disregard the low savings rate and keep right on spending, leveraging themselves back to levels seen before the Great Recession. This could create risks should interest rates rise significantly, or should the economy eventually slow again.
9 U.S. Bureau of Economic Analysis, as of December 29, 2017.
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