Consumers Are Reloading After Killing It For Years
The Standard & Poor's 500 index rose 1.6% last week but the big blue-chip U.S. companies closed down fractionally on Friday despite some very positive economic data.
The image above shows you the four cylinders of growth in the U.S. economy. These four cylinders are not created equal.
The most influential one is in the upper left. Personal consumption accounts for about 70% of economic growth.
Now even though the most recent personal consumption data for the fourth quarter of 2015 showed a dip, the four cylinders are positive and indicate that the long-term growth trend remains intact.
While Government spending did not grow in the fourth quarter of 2015, it is poised to continue its upward long-term trajectory and likely to zag up again in the quarters ahead, according to Fritz Meyer, an independent economist who compiles this data for our firm.
Meyer says sometime in 2016 personal consumption could grow by 2%, and private domestic Investment could revert to a one-quarter of 1% growth rate, while growth in spending by government could add another one-quarter of 1% to GDP.
That would give the U.S. GDP a 3.25% growth rate. For the last two years the economy has grown at a 2.1% rate.
The big driver as always is personal consumption expenditures and that does seem likely to remain strong because it is being driven by disposable personal income and the numbers, which takes us back to the data released Friday.
That 4% compares to the 4.4% that was seen at the peak of the economic cycle before The Great Recession. That is strong growth.
Finally when you subtract the black line, representing personal outlays, from the red line representing disposable personal income, the result is the gray line, which is personal savings.
The 5.2% savings rate is much higher than the savings rate at the peak of the last economic expansion. Consumers are saving some of the money they are saving on lower gasoline prices.
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