Partying Like It's 2004

Once again, Americans' spending is growing more quickly than their income.

Personal income increased by $36 billion in March, while spending by individuals increased by $59 billion, the government said today.

In the short term, this is good for the economy — people buy more stuff, businesses hire more employees. That in turn means more people can buy more stuff, and more businesses can hire more employees.

In the long term, though, it's unsustainable.

When spending rises faster than incomes, the rate of saving declines (obviously). And the savings rate in this country can't get much lower.

As Calculated Risk points out, Americans' savings fell from 12% of disposable personal income 30 years ago to about 2% of personal income in 2008.

The rate jumped back up a bit during the crisis, but now it's started falling again. In March, it was at about 3%, roughly equivalent to where it was back in 2004, when credit was loose and the economy was humming.



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