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Save Less, Spend More... For Now

By: Darrin Duber-Smith


Saving less and spending more appears to be the preferred state of being for the average U.S. consumer in 2017, and this could be a large reason why recent economic growth has been better than in recent years. Big ticket items like automobiles and household appliances appear to be driving the trend, possibly due to some pent up demand for these sorts of items, but since income growth has been modest at best, one wonders where all the money is coming from. And now we know.


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The savings rate fell to a 10-year low of 3.1%, down significantly from as high as 6.3% in late 2015. While this is great for marketers in the short run, eventually the savings rate will have to rise again, and without growth in GDP and income, these same consumers will eventually have to pull back. This means that marketers have only a short window to take advantage of this short-term shopping spree, but take advantage of it they can.


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The good news is that a pending reduction in the business tax rate (currently the highest in the entire developed world) will give companies more flexibility to hire and give pay raises, which should raise GDP. Higher economic growth means that when consumers do raise their rate of saving, they would have more money to spend due to higher GDP, and so they could continue spending.


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Of course without a reduction in the size of government, our national debt will rise as tax rates fall despite GDP growth, but that is another problem altogether. The point here is that economic growth and spending are closely related, and that lower taxes rates combined with higher incomes mean that both businesses and consumers will have more money to spend. If tax rates remain the same or for some reason increase, it is highly unlikely that we will be able achieve the economic growth necessary to overcome the effect of consumers scaling back their spending and increasing their rate of saving. Marketers should be rooting for lower taxes. And right now, the political environment is heating up on this very subject. Let's see what happens.


Discussion: In what other ways can the economic environment influence marketing decisions? What can government do (or not do) to help foster a healthier economic environment?