Robert Samuelson attributes the lagging economy to increased propensity to save:
Why is the recovery faltering? There are many explanations: a depressed housing market; weaker-than-expected exports; cautious corporations. But consumers, representing 70 percent of the economy’s $14.5 trillion of spending, are the crux of the matter.
It isn’t that Americans aren’t behaving as anticipated. They may actually be outperforming. “Consumers are deleveraging (reducing debt) . . . and rebuilding saving faster than expected,” writes economist Richard Berner of Morgan Stanley. In 2007, the personal savings rate (the share of after-tax income devoted to saving) was 2 percent. Now it’s about 6 percent. Temporarily, this hurts buying. Declines in consumer spending in 2008 and 2009 were the first back-to-back annual drops since the 1930s. Since World War II, annual consumption spending had fallen only twice (1974 and 1980).
There are some obvious responses to this including repairing balance sheets, people concerned about losing their jobs, the possibility that there’s no real behavioral change (what people previously reckoned as saving isn’t considered saving even though it had the same effect), and so on. However, there’s one thing I think needs pointing out.
There are about 80,000,000 Baby Boomers, those born in the post-war generation over the 19 year period between 1946 and 1965. Divided by 19 that comes to about 4.2 million per year on average. That means that 4.2 million Baby Boomers per year will be retiring, more than the cohort that preceded them or the cohort that will follow them, most of their incomes will fall dramatically, and they’re going to need to be a lot more careful with their money than they used to be.
Get used to a reduced level of personal consumption. It’s here for the next couple of decades.