- 29 Jun 07, 05:15 PM
Security issues might have averted our gaze, but some rather interesting statstics were relased this morning that more or less complete the picture we have of the economy in the first quarter of the year.
The two main headlines for me: real household disposable incomes (i.e. incomes after tax and inflation) fell for the second consecutive quarter. And (probably as a resuilt of that) savings collapsed to their lowest proportion of income since 1960.
Putting these in numbers, households were 0.3 per cent poorer in the first quarter of the year than they were three months before. And they saved a mere 2.1 per cent of their incomes. (It's not much if they aspire to retire on a reasonable income for a quarter of their adult life).
Consumer spending was robust, growing 0.5 per cent in real terms. The economy grew strongly, by 0.7 per cent in the quarter. It's three per cent bigger than a year ago.
How should we interepret the data?
It seems that the economy is still being to some extent sustained by consumers who are struggling to adjust to the fact that their spending power is not rising as fast as it was. They are still spending more even though their income has not been rising.
One wouldn't want to be too alarmist about this, but it slightly smacks of the cartoon character chased off a cliff - with the legs still running before the character finds the ground is no longer there and a fall is imminent.
The fundamental problem is that unless household incomes start rising quite fast again, some adjustment will surely have to be made to spending. Historically, we have saved about seven or eight per cent of our disposable income. A big economic question is how the economy will fare in the short to medium term, when we return to that normal level. (Alternatively, one might ask how on earth we would fare in the long term, if we didn't save at that normal level!)
The best hope for us is that real incomes improve, either through a large increase in our own producitvity and earnings, or through a fall in the prices we pay for things. Perhaps if the kind Chinese workers could supply us with yet cheaper goods, the adjustments that seem necessary would be more comfortable!
The BBC is not responsible for the content of external internet sites