Grab the resuscitation paddles. The American consumer has lost the will to shop. Haven't you heard? Jolts of stimulus cash are needed to get sales registers ringing again and restore lost jobs.
Don't believe it. Such logic was used to justify programs like the "cash for clunkers" incentive, which expired a year ago, and additional cash perks for home buyers, which ran out in April. Judging by data reported by the Bureau of Labor Statistics, the programs failed to produce a surge of home-building and car-making jobs.
The two charts below suggest why. The first shows our supposed crisis of frugality. Consumers do one of two things with their after-tax income. They spend or save. The first chart shows the portion they've saved since 2000. Notice how the trend has risen menacingly since 2007. Judging by this chart, today's rate seems abnormal.
The second chart suggests otherwise. Our current savings rate is well below the average of the 1950s, '60s, '70s and '80s, and about on par with the first half of the '90s. The anomalous increase during the 1940s reflects a period when everyone from Bette Davis to Norman Rockwell was urging Americans to stash as much of their pay as possible in war bonds – when the Treasury even issued a special non-defense version, so Quakers could pitch in, too. Ignore these six years and the nation's average savings rate since 1929, the starting point for the data, is 6.5%.
The second chart makes plain that the eight or so years ended 2007 were anything but normal. They included two stock bubbles and a housing bubble – and wanton consumer spending.
The savings rate has now topped 5% for 20 consecutive months. Its average during this period? Just under 5.9%. Our crisis of frugality looks more like a return to normalcy, and perhaps we're not quite there yet.
The jobless rate, of course, is anything but normal. It's 9.5%, using the measure most often cited by the press (and much higher using broader measures that include discouraged job-seekers and part-time workers who'd rather be full-time). The average since 1948 is below 6%.
The employment problem will require aid to the struggling in the short term and a rekindling of manufacturing in the long term. However, the fix surely isn't to try to lure shoppers back to stores, or to offset consumer prudence with government profligacy.
Jack Hough is an associate editor at SmartMoney.com and author of "Your Next Great Stock."
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