Thursday, 16 June 2011

Has US private consumption actually recovered ?

A commonly discussed theme is that private consumption in the US has recovered after the lows posted during the height of the crisis. (a good question would be if the crisis has really ended or whether it just has retreated for the moment waiting for the right moment to cast its venom again)

But is that so? Here’s the chart for Real Personal Consumption Expenditures.

source: Federal Reserve Bank of St. Louis

It is true that the figure for real PCE has recovered. But given that unemployment is still really high and more and more people are dropping out of the labour force it becomes obvious that there is an ever increasing duality forming in the US society.

What I think would be fit to help us dissolve the perils of aggregate measures like real PCE is trying to take population into consideration.

source: Federal Reserve Bank of St. Louis, own calculations

It appears that population-adjusted real PCE has not reached or surpassed pre-crisis highs after all.

All these basically mean that population grew with a faster pace than real PCE.

With unemployment that high and participation rate constantly falling people working have to support an ever increasing number of members of their households that are jobless or retired.

source: Federal Reserve Bank of St. Louis

Could this be the very fact that is keeping the US savings rate from increasing as much as some people expected?

One could think that this is out of place or grossly mistimed given the latest developments in my native Greece, but this is not quite so. It reminds me that things are not that rosy elsewhere and the so called economic recovery is not that robust. Maybe I’m totally exaggerating here but again maybe a little shove is all it takes to destabilize the economic recovery again…

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