Recent government data reveals that Americans have been supporting their spending with their savings. The increase in spending is also recognized by economists as a sign of optimism and consumer confidence. Commerce Department data show that consumers have been spending more, as measured by the Personal Consumption Expenditures (PCE), and saving less, as measured by the savings rate, which fell to a ten-year low of 3.1% in September.
Integral components of consumer expenditures include income, credit and savings, basically where we get the money we spend. Every month, the Bureau of Labor Statistics tracks various data such as how much we spend, reported as Personal Consumption Expenditures (PCE), and how much we save, represented by the savings rate. For many Americans that save diligently, using credit to spend is usually a last resort. So, for those consumers, spending from savings occurs before tapping a credit card. The most recent data show that consumers, as measured by the PCE, have been spending more over the past year. The concern is that consumers are concurrently saving less, meaning that savings are starting to go towards expenditures.
Economists view this dynamic as a possible rise in prices and inflationary pressures where current income may not be keeping up with rising inflation. Continued job and wealth gains have inspired consumers to spend more confidently. Another notable data set, tracked by the Federal Reserve, is household net worth, which revealed an increase in its most recent release, adding to consumer confidence.
Source: BLS, Federal Reserve Bank of St. Louis
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