The WSJ ran a story today stating how excess saving will slow the recovery. Sorry, but that's stupid. All anyone complained about as consumers became overburdened with debt in the last 10 years was the urgent need to replenish savings. And that's exactly what consumers are doing today.
Complaining about re-stocking savings is like saying you'll lose a footrace because you're wasting too much energy breathing. What is the alternative?
From the story:
The stock market is clearly pricing in an end to recession. What remains to be seen is the strength of the recovery, and savings accounts could have a lot to do with that.
The Bureau of Economic Analysis is due Tuesday morning to report June personal-income and personal-spending data, which will include the latest figures on personal saving.
Economists, on average, think income fell 1.2%, reversing May's 1.4% spurt, which was driven mainly by a one-time stimulus windfall for Social Security recipients. Economists think spending rose 0.3%, thanks mostly to more-expensive gasoline. Inflation-adjusted spending was likely flat.
If this expected combination of falling incomes and higher spending comes true, then the percentage of consumers' disposable income socked away into savings will likely fall after surging to 6.9% in May.
But the long-term path for savings is inevitably higher.
The higher savings rate, whether measured in gross dollars -- roughly $787 billion, percentages -- 7% gross, or as a percentage of disposable income, will accelerate, not slow, the economic recovery.
Consumers are reloading their spending weapons. Americans are not like the Japanese, who truly do hoard savings for the long term. Americans like to spend. But they need money to do so, now that they have completely drawn down home-equity lines, credit card lines and other ready sources of cash.
Higher savings means that the recovery that (I think) is upon us will be more durable as consumers use their cash to finance purchases that were previously paid with credit. With yesterday's monthly car sales report, we saw auto sales jump to an annual rate of 11.2 million units. GM, among the most troubled of car companies, says it can turn a profit at a 10-million-unit sales rate. This is great news for the economy.
Indeed, a rebound in auto production, after an earlier-than-usual summer furlough, will boost third-quarter GDP noticeably.
As economist Ed Yardeni noted yesterday, if the economy just holds steady in the third quarter, through the miracle of GDP arithmetic, third-quarter growth can reach 4.6%! That would surprise a lot of people.
As the "Cash for Clunkers" program clearly illustrated, there is pent-up demand for cars. Housing starts, despite recent improvements, are running at one-third the rate of household formation. That is a historic and unsustainable gap.
I believe the economy is entering a phase where the recovery will be stronger than expected and become more self-sustaining. There are headwinds, no doubt, that still plague the financial community and the economy overall.
But I wish those who complained about depleted consumer savings would find a silver lining, rather than a black cloud, in the fact that consumer balance sheets are improving as they should and as they have at the end of every prior recession.