Savings Rate Lowest In A Decade, Credit Card Balances Soar
January 23, 2018
Over the last several months, I have written often about how the US economy has strengthened significantly since the disappointing 1Q of last year. This time last year, most forecasters felt the economy would do well to grow by 2% in 2017.
As we know now, the economy accelerated by over 3% (annual rate) in the 2Q and 3Q and expectations are that we had 3+% growth in the 4Q as well. We’ll know for sure this Friday when the Commerce Department releases its first estimate of 4Q GDP.
So, the question now is, what to expect of the economy in 2018? Unlike this time last year, optimism abounds today. Some forecasters are going so far as to predict GDP growth of 4% or better this year as the tax cuts kick in. Some are now predicting an economic boom this year.
As I will explain below, I do not agree that we’ll see an economic boom this year. I do expect that we will see continued growth, but not what I would call a boom.
There are several reasons for my somewhat less optimistic view of US economic growth, but chief among them is the fact that the US savings rate fell to the lowest level since 2007 last year. Another is the fact that credit card balances soared last year. Both of these trends will reverse at some point, and this will limit growth this year and perhaps beyond.
Let me be clear: I do expect another year of relatively strong economic performance in 2018 in the range of 2.5%-3.5%, but I’m not expecting a boom of 4%-5% as some are now forecasting. Let’s get started.