Friday, August 20, 2010
Menzie Chinn at Econbrowser breaks down US import data by sector to argue the following (see entire article here):
What is clear is that consumer goods do not vary that much; now, part of auto and auto parts is going to satisfy consumer demand as well, and here we do have some evidence in support of the hypothesis of the consumer going back to his/her old ways of sucking in imports.Another way to look at this is by comparing global household saving rates. Specifically, I look at the household saving rates across the US (the world's largest economy in 2007, as measured in PPP dollars - download the data at the IMF World Economic Outlook database), UK (6th largest economy), Canada, and Germany (5th largest economy). The household saving ratio is calculated as gross household saving divided by personal disposable income, as reported in country National Accounts.
Consumption hardly seems resurgent, so attributing the increase in imports to consumers means that one is assuming a very high share of imports to incremental consumption -- something I'm not sure makes sense. So, I think the book is still open on whether the consumer is going to drive the US back into a rapidly expanding trade deficit.
If the global economy is indeed "rebalancing", then relative to disposable income the big spenders (US, UK) raise saving, while the big savers (Germany) increase spending. In contrast, if the global economy is returning to the pre-crisis "status quo", then relative to disposable income household saving rate would:
- fall in the US and UK
- rise in Germany
The German household saving rate is rising, while the UK households saving rate is falling. In the US, we're seeing the household saving rate stabilizing above pre-crisis levels, even increasing at the margin.
The table below lists average household savings rates for the pre- and post-crisis periods. Notably, the average US saving rate more than doubled to 4.8% since the previous 2005-2007 period, while that in the UK increased a much smaller 36% to 4.6%. Notably, German households increased average saving above an already elevated 10.6% average during the business cycle.
So generally, this simple analysis would suggest that Menzie Chinn's skepticism of a "status quo" of US consumer imports is worthy. But with the status quo firmly in place in Germany, the household saving data paint a foreboding picture - certainly for the Eurozone, but possibly for the global economy as well.
I'm in no way "blaming" this on the Germans - the banking system there will eventually contend with the crappy Greek and Portuguese assets they hold on balance. But didn't they learn their lesson? Relying on exports makes the economy highly susceptible to external demand shocks.
More on the UK vs US in my next post.
Note: Clearly, an analysis of this sort would require a much larger cross-section of household saving data. But differing measurement methodologies and data limitations make the comparison too arduous for a simple blog post. For example, Japan is not part of the analysis because only the expenditure approach to national income is available on a quarterly basis.