One of America’s fundamental economic problems has been overconsumption. Part of the reason for the housing bubble in 2007 was first time home buyers were taking out loans they couldn’t afford. However, in the wake of the collapse and the current economic uncertainty, Americans are now making the smarter decision to spend less and save more. Business Insider reports on the latest data from Deutsche Bank:
The U.S. economic recovery has been slow. The economy grew just 1.9 percent in the first quarter and is expected to show little improvement.
But in a new note Deutsche Bank chief economist Joseph LaVorgna writes “there has been some fundamental improvement in household balance sheets that may be getting short shrift by investors.”
He points to the ratio of household liquid assets to liabilities which has increased to 2.11 in the first quarter of 2012, from 1.99 in the fourth quarter of 2011, as a positive sign. The is the highest reading since Q1 2002.
This ratio measures the health of consumers by looking at their aggregate balance sheet. And the quarterly increase has been the biggest in over a decade.
This morning Gluskin Sheff economist David Rosenberg wrote that the savings rate is climbing as policy uncertainty continues and the job outlook remains clouded. And personal consumption expenditure is expected to “barely come in much better than a 1% annual rate. That is stall speed.”