Why U.S. Consumption Stays Somewhat From a Different Perspective
Before I go in, I’m sorry for posting a tweet early yesterday morning that caused a little fuss because my account was locked for a while. 🙇♂️ I guess I was very embarrassed because this is my first time doing this. X was going to just post about economy and investment. 😮💨 From now on, I’ll watch the situation more and act.
So, what we’re going to talk about today is that consumers’ consumption has slowed down a little bit even in the Beige Book yesterday, but it’s maintained to some extent. Of course, there’s a difference between classes… This is a bit different from the original preliminary savings theory..
Preliminary savings theory is… The idea is to prepare for uncertainty by reducing consumption and increasing savings when a household perceives uncertainty in future income. So…The greater the risk to the future, the more households tend to save..
This is because households with higher uncertainty refrain from spending today and increase their liquidity assets (assets that can be cashed in less than a year > representative savings)
In other words, if you look at the preliminary savings theory, the marginal propensity to consume should decrease as uncertainty increases, but the U.S. is now solid even though uncertainty is widespread. I’m going to talk about why this is happening. (I brought some interesting research.)
First of all, the higher the uncertainty, the higher the MPC (marginal propensity to consume)…In other words, households with uncertain and volatile prospects for future income spend a significant portion of what they receive in the event of an unexpected increase in income (e.g. bonuses or stimulus checks etc.) … Originally, savings would have to increase in uncertain situations, but the opposite is true..
However, it is not directly proportional but appears in a concave form. When the level of uncertainty is increased from low to medium, the MPC rises significantly, but when the uncertainty is increased from medium to very high, the MPC increases gradually..
So for example…Increasing uncertainty in a household’s income outlook from “low” to “moderate” could lead to a significant increase in their MPC, but further increases in uncertainty from already high levels could slow or near the limit. See the picture below. (The relationship between household income growth uncertainty (horizontal axis) and / MPC (vertical axis)
The reason for this is the household price
1)You don’t know exactly what the future risks are. For example, if households have a low sense of the uncertainty they actually face (such as optimistic bias), they don’t save enough when the uncertainty grows…
2)Some households may decide their consumption based on the propensity to consume they have so far, and they may not accumulate assets even if the risk increases. They may be able to show that “the MPC does not fall even if the uncertainty increases”…
If you look closely at the consumption section of yesterday’s Beige Book, you can see that consumption among the middle and upper classes has been maintained and has played a role in supporting overall consumption, but consumption among low-income households has been shrinking. In particular, high-income households are said to be resilient to consumption.. Even though the economy is uncertain, there is a tendency to consume a lot of non-essential consumption..
If you look a little bit more… Low-middle-income households are increasingly using credit card debt and installment payments, BNPL, as a means of maintaining their consumption. That is, they are showing signs of maintaining their debt, especially on low-middle-income families..
The low-income class is having difficulty spending basic living expenses, savings burnout is appearing, and the middle-income class is occasionally supporting consumption through credit. In addition, non-essential consumption, such as hotel and travel consumption for middle-income families, has decreased significantly in the St. Louis area, leading to a “middle-income class economic recession.” In other words, the MPC relationship model based on uncertainty propensity shows that uncertainty is going to a middle-income class after low-income.
Until now, the uncertain situation was low > low income because it came up to the middle. The MPC of the middle-income class was maintained rather than decreasing, and as a result, the US consumption power was maintained.. In the future, if uncertainty is not resolved and the situation for low-income and middle-income families is not improved, consumption that has been maintained so far could slow down significantly…
Yesterday and today, our market is enjoying a tremendous rise with a lot of good…
When will Tesla come out with self-driving technology F FSD v14.1.2 Early Access Initiation —…
"It's a relief that Samsung Electronics won't sell"…Recapturing 'No. 1 Memory Market' Over SK Hynix…
In 1981 in Germany, the victim's mother emptied the magazine to the defendant in courtOn…
The dollar, which doesn't go down easily, and the financial war 1) USD-KRW 1420 range…
10/16 U.S. stocks rebound after Fed director Myron's comments and U.S.-China concerns digest sales The…