Creative Destruction

May 3, 2007

Economically Unsupported Consumption

Filed under: Economics — Brutus @ 9:30 pm

The Burea of Economic Analysis released some figures regarding personal income and outlays at the end of last month. According to this graph, which shows the trend lines for labor compensation, personal consumption, and savings rate, the first two factors adjusted for inflation using the PCE deflator,

personal income graph

the savings rate has dived into the negative at the same time that rates of earnings growth and personal consumption have stayed roughly flat. Unless I’m misunderstanding, doesn’t this pretty much show that on average we’re spending our savings and going into greater debt to support our lifestyles? In short, aren’t we consuming in excess of the general economic health that would support such behavior?

Perhaps you economists could interpret this data better for me.

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