In less than a year's time, U.S. households have gone from spending practically everything they earn, and then some, to socking away larger amounts of their incomes. It had been suggested that if the savings rate climbed even to levels seen during the 2001 recession, the current downturn would end up being a pretty nasty one, since this would represent a large withdrawal of consumer purchasing power from the economy. Well, fast forward to today's personal income and spending report. It showed the savings rate has already soared past its 2001 levels and has exceeded 4 percent for two consecutive months for the first time in over a decade.
Although this rapid upturn in savings rates weighs on aggregate economic growth now, it cannot continue in perpetuity and even sets the stage for a stronger economic growth down the line. Indeed, consider the current deleveraging process, as it will result in consumers having greater cash flow as they pay off debts and restore decimated household wealth. At the same time, consumers can only delay purchases for so long before pent-up demand grows, which should in turn boost sales of many goods and services-even homes and autos.