A Few Signs Are Pointing To A Lower US Savings Rate In 2015

February 06, 2015
By Knowledge Leaders Team in Economy

Since the depths of the financial crisis, the rebound in consumer credit has been polarized. On the one hand you have non-revolving consumer credit (i.e. car loans, student loans, etc.), which briefly declined on a year-over-year basis in 2009 and early 2010 before violently rebounding in 2011. Over the past two years, non-revolving consumer credit has consistently grown at an approximately 8% year-over-year rate. On the other hand, you have revolving consumer credit (i.e. credit cards) which plunged in 2009 and continued to decline on a year-over-year basis until the end of 2011. In 2012 and 2013 revolving credit stopped declining but only grew at approximately a 1% rate. However, finally in 2014, revolving credit  bounced back and steadily increased all year long. It finished the year growing at a 3.5% year-over-year rate, the highest such rate since 2008. It should be noted that this is still well below the 8% year-over-year growth rate that revolving credit has averaged over the past 30 years. Combined together, consumer credit grew by 6.9% in 2014.

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However, this increase in consumer credit may be a negative sign for the personal savings rate in the US. Consumer credit as a percentage of disposable income reached an all-time high in 2014. At the end of December, consumer credit equaled 25.1% of annualized disposable personal income. This has had a highly negative correlation to the savings rate (-0.85) since 1960 and we would not be surprised to see the savings rate decline further.  In addition, the highest percentage of consumers are confident that they will receive a raise in the next six months since December 2007. Over the past decade, the more consumers that expect a raise the lower the savings rate tends to be.

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