Our current economic downturn was characterized by a sudden and severe drop in Americans' consumption spending relative to their disposable income. The shift in the Bureau of Economic Analysis numbers was pretty dramatic, as this graph (not adjusted for inflation) shows. Americans quite suddenly shifted their personal consumption expenditures (PCE) downward relative to their disposable income (DPI) in order to weather the downturn, as the widened and persistent gap between the two lines on this graph demonstrates.
That's why a central theme behind President Obama's $814 billion stimulus package was to get people to go out and spend more money. Did it work? The numbers released this morning for the first quarter of 2011 indicate that no, it didn't. Americans spent less of their income than in the previous quarter. A nearly 6 percent, the savings rate is way up from its 2005 nadir of 1.2 percent, and its 20-year average of 4.25 percent.
Not to say that increased savings is a bad thing -- in fact, the average since World War II is above 7 percent. But it is still another indicator that the stimulus package has not worked as promised. For all the White House concerns about trickling out the money in small doses in order to "trick" people into spending more, it just hasn't worked. People don't spend money just because government starts shoveling it out the door. They also need to feel secure about their jobs and their futures -- a feeling that the huge dose of government deficit spending has not created.