Since the end of the Great Recession, American economic growth rates have been quite modest, particularly when compared to historical levels as shown on this chart:
Real growth rates (i.e corrected for inflation) of the economy look even worse as shown on this chart:
As we can see on this graph from FRED, personal consumption expenditures have made up an increasing part of GDP, rising from 58.5 percent in the late 1960s to 69 percent in 2011:
In the first quarter of 2015, personal consumption expenditures made up 68.4 percent of GDP. This means that the growth rate of the American economy is highly reliant on growth in personal consumption levels. Unless households have a sense of confidence in the economy, they will modify their expenditures, a factor that has become apparent since the end of the Great Recession as shown on this chart:
In May 2015, the Federal Reserve released its annual "Report on the Economic Well-Being of U.S. Households in 2014". In this report, the Federal Reserve gives us a sense of where the economy is headed, based on the sense of economic well-being of American households. Here is a summary of some key aspects of the data:
1.) Economic Well-being: Respondents were asked to compare their current financial situation to their situation five years previously. While the percentage of households that felt that they were much worse off in 2014 dropped compared to 2013, 27.6 percent of households still felt that they were worse off in 2014 than they were in 2009 as shown on this table:
Overall, 23 percent of respondents felt that they were worse off than their parents were at the same age while 52 percent said that they were better off than their parents.
2.) Economic Fragility: Here is a graphic showing the percentage of households that could pay off an emergency expense of $400 using either cash or a credit card that is paid off in full at the end of the month:
Note that a majority of households of all ethnic and racial groups making less than $40,000 annually have not saved $400 for emergency expenses. Overall, just 53 percent of respondents said that they would be able to handle an emergency expense of $400 fairly easily with 47 percent stating that an unexpected expense of this type would prove to be problematic. Overall, only 45 percent of respondents indicated that they have set aside a rainy day fund that would cover three months of expenses.
3.) Household Spending and Income: Here is a graphic showing the percentages of households (by income) that spend more than their income, spend their income or spend less than their income:
Overall, 41 percent of respondents stated that they spend less than they earn, 37 percent state that their spending is equal to their income and 20 percent state that they spend more than their income. This is most obvious for lower income households, however, 15 percent of households earning more than $100,000 annually still spend more than they make.
Here is a graphic showing the percentage of household income saved for each income group:
Thirty percent of respondents stated that they saved nothing over the past year.
4.) Access to Banking and Credit: Here is a table that shows the percentage of households of each income group that are fully banked, underbanked (i.e. they have a bank account but also use an alternative source of banking such as a pawn shop loan, payday loan etcetera) and unbanked (i.e. they have no bank account of any type):
Overall, 7.6 percent of respondents have no banking services of any type and a further 12.2 percent are considered to be underbanked.
Here is a table that shows the percentage of respondents who applied for credit during 2014 that have been denied credit, offered less credit than they applied for or have put off applying for credit because they expected to be denied:
If the entire population of both those who applied for and did not apply for credit are included, 16 percent of respondents were either denied credit, offered less credit than they applied for or put off applying for credit because they expected to be denied.
5.) Retirement: Here is a table that shows how much thought American households have given to planning for retirement by household income:
A total of 39 percent of respondents stated that they had given either "a little thought" or "none at all" when it came to retirement planning. The higher income households have, in general, given more thought to retirement whereas 51.4 percent of households earning less than $40,000 annually have given little or no thought to funding their retirement. Overall, only 21.6 percent of respondents of all income groups expect to have a traditional retirement where they work until they retire and then stop working all together as shown on this table:
When looking at both pensions and savings for retirement, 31 percent of non-retired respondents had no pension or savings of any type. Among respondents, only 42 percent of those making under $40,000 annually have any retirement savings compared to 82 percent of households with incomes greater than $100,000. A total of 45 percent of all respondents expect that they will have to work in some capacity to cover their household expenses when they retire and 26 percent expect that their spouse will also have to continue to work.
It is interesting to see that, six years into the post-Great Recession recovery, a significant portion of American households, particularly those with incomes under $40,000 annually, face future economic difficulties because they have no savings, no ability to cover emergency expenses and no retirement plan other than working until their health prevents them from doing so. In large part, the results of this annual poll by the Federal Reserve show us why economic growth rates continue to be modest at best. American households are not feeling terribly optimistic about the future and their pessimism goes a long way to explaining why, despite the Fed's near-zero interest policy, household consumption is growing at much lower rates than in the past.