By Eric Bush, CFA, Gavekal Capital Blog
Over the past 10 years, personal income in the US has increased at a 3.39% annualized rate, which is the slowest 10-year annualized growth rate since the data began in 1960. Clearly, there has been a "stair-step" decline in the growth rate of personal income over the past several decades. In the 1980s, personal income averaged a 9.5% annualized growth rate; in the 1990s, it averaged a 6.4% annualized growth rate; and in the 2000s, it averaged a 5.2% annualized growth rate. Thus far in the 2010s, the average annualized growth rate has fallen to 3.9%.
Even as the growth rate in personal income has slowed during the course of this decade, the American consumer is saving more money by spending less than they are making. In the chart below, we show the spread between the 10-year annualized change in personal income and the 10-year annualized change in personal consumption expenditures. When this spread is positive, as it has been since 2010, it indicates that consumers are spending less than they are making. This chart illustrates just how rare it is for Americans to spend less than they earn in the post-WWII era. From 1976 to 2011, US consumers regularly spent more than they made. The global economy needs to recognize that there is a new "smarter" American consumer out there as two-thirds of Americans now say they prefer saving over spending compared to just about 50% agreeing with that statement prior to the GFC.