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Disappointing Consumer Spending - 5/11/15

Consumer spending has been disappointing in recent months.  Many had expected that consumer spending would remain robust through the early months of twenty fifteen due to a combination of low interest rates, solid job creation, improving job quality, rising wages, and low fuel prices.  That hasn’t been the case, with retail sales disappointing thus far in twenty fifteen.

Thus far, consumers have chosen to save their fuel savings.  The price of gasoline is roughly a dollar less than it was at this time last year.  Most expected that this in and of itself would increase spending significantly, but consumers have largely opted to put the additional money into savings.  The U.S. savings rate rose from four point four percent in October to five point eight percent by February.  This is particularly surprising given elevated consumer confidence. 

Measures of confidence are presently near cyclical highs.  While the gains from the economic recovery have been unevenly shared, the average household is getting better off.  Total wealth ended last year twenty two percent above its pre-recession high, and has risen for four straight years.  Bottom line:  expect consumer spending to accelerate.

Anirban Basu, Chariman Chief Executive Officer of Sage Policy Group (SPG), is one of the Mid-Atlantic region's leading economic consultants. Prior to founding SPG he was Chairman and CEO of Optimal Solutions Group, a company he co-founded and which continues to operate. Anirban has also served as Director of Applied Economics and Senior Economist for RESI, where he used his extensive knowledge of the Mid-Atlantic region to support numerous clients in their strategic decision-making processes. Clients have included the Maryland Department of Transportation, St. Paul Companies, Baltimore Symphony Orchestra Players Committee and the Martin O'Malley mayoral campaign.