Why Americans are saving more and spending less

Americans boosted their savings levels to a three-year high in December 2015, according to a report released Monday by the Commerce Department.  

Mark Lennihan/AP/File
Shoppers carry their shopping bags as they leave the Aeropostale clothing store in New York's Times Square (Dec. 2, 2015).

Americans are reining in spending and saving more, according to the latest report personal income and spending report from the US Commerce Department.

Savings among US households jumped to a combined $753.3 billion in December, the highest savings rate since 2012. A rise in income and a decline in personal consumption were the largest contributors, although a decline in the cost of food and energy also played a role.

Personal income rose by about 0.3 percent in December, according to the Commerce Department's report. Following a two-month high in October and November, wage and salary income rose by only 0.2 percent in December, but real disposable income saw a 4 percent increase in the final month of the year.

Wage and salary incomes only saw slight increases, and Americans are choosing to save what they can of that extra cash. The amount that Americans put away in savings rose by 5 percent during the last six months of 2015.

Why are Americans saving more? A decline in energy prices may have played a role. December’s warm spell meant that many Americans spent less on utilities than projected, and China’s rocky economy translated into rock-bottom gas and oil prices worldwide. For Americans, not having to spend as much on their energy bills may have also translated into putting more aside in savings.

Americans also chose not to spring for year-end car sales in December: car purchases declined by approximately 0.9 percent during the last month of 2015. According to Barclays Research, Americans also weren’t too keen on durable and nondurable goods, with each showing an 0.7 and 0.2 percent decline, respectively. All told, real personal spending increased by only 0.1 percent for December, compared with a 0.4 percent jump seen in November.

How will all of this affect the first quarter of 2016? MFR, Inc. economist Joshua Shapiro predicts that several factors, beyond the current labor market, could change Americans’ current spending habits. These include consumer perceptions about the relative strength of the US economy. MFR also projects that the downward trend in spending could continue as America’s older population seeks to increase its collective retirement savings.

But IHS Global Insight, an economic analysis firm, predicts that consumer spending could pick back up in the first quarter of 2016. Spending on energy and other utilities showed a decline in December thanks in large part to unseasonably warm weather, but those spending patterns may return to normal as weather patterns also begin exhibit more normalcy. IHS Global Insight also projects that consumer spending on durable and nondurable goods is likely to show an increase in the first quarter of the year.       

“Consumers in the US. have gotten a little savings religion given what happened in the previous decade with the financial crisis, but I don’t think they’ve completely changed their habits,” First Trust Portfolios LP deputy chief economist Bob Stein told Bloomberg. “Eventually, consumers are going to loosen up on their pocketbooks and their wallets.”

You've read  of  free articles. Subscribe to continue.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.