{"id":4705,"date":"2024-02-08T12:27:02","date_gmt":"2024-02-08T12:27:02","guid":{"rendered":"https:\/\/mmm.9dotdigital.ca\/?p=4705"},"modified":"2025-03-27T15:50:43","modified_gmt":"2025-03-27T15:50:43","slug":"what-explains-us-consumer-exceptionalism","status":"publish","type":"post","link":"https:\/\/mmm.9dotdigital.ca\/?p=4705","title":{"rendered":"What explains US consumer exceptionalism?"},"content":{"rendered":"

US consumers have trounced the Europeans – again. US personal consumption rose by 9.7% between Q4 2019 and Q3 2023 versus a 0.5% increase in the Eurozone and a 1.6% fall<\/span> in the UK – see chart 1.<\/p>\n

Chart 1<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

The divergence probably widened in Q4, judging from retail sales. US sales rose solidly into year-end as Eurozone turnover flatlined (through November) and UK sales hit a new low – chart 2.<\/p>\n

Chart 2<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

Faster growth of US real personal disposable income explains just over half of the US \/ Eurozone consumption divergence over Q4 2019-Q3 2023 and about one-third of the US \/ UK difference. The remainder reflects contrasting saving behaviour.<\/p>\n

The US personal saving rate fell by 2.3 pp between Q4 2019 and Q3 2023 versus rises of 1.4 and 4.3 pp in the Eurozone and UK respectively – chart 3*.<\/p>\n

Chart 3<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

What explains the willingness of US households to consume more out of their income than before the pandemic, both in absolute terms and relative to Europeans?<\/p>\n

A “monetarist” view is that divergent saving behaviour is related to the magnitude of the boost to household money balances from pandemic-era monetary and fiscal stimulus.<\/p>\n

The rise in the ratio of household broad money to disposable income from Q4 2019 was larger and peaked later in the US than in the Eurozone and UK – chart 4.<\/p>\n

Chart 4<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

Households with “excess” money balances adjust by spending more on consumption or investment (housing), adding to non-monetary financial assets and \/ or reducing debt. The larger US excess has probably resulted in a bigger and more sustained boost to consumption than in Europe.<\/p>\n

To the extent that monetary adjustment involves higher consumption, the saving rate will be lower than otherwise until the ratio of money balances to income is restored to an “equilibrium” level.<\/p>\n

Judging how much of a consumption boost remains requires an estimate of “equilibrium”. As chart 4 shows, the ratio of household broad money to income is below its Q4 2019 level in the Eurozone but still higher in the US and, to a lesser extent, UK.<\/p>\n

A superior approach, however, may be to compare money to income ratios with their pre-pandemic trends, since the ratios tend to rise over time as wealth grows faster than income.<\/p>\n

On this basis, money demand may now be acting to restrain consumption in the Eurozone \/ UK, while US excess money balances are now modest and on course to be removed during 2024 – chart 5.<\/p>\n

Chart 5<\/strong><\/p>\n

\"\"<\/span><\/span><\/p>\n

The US money to income ratio peaked in Q1 2022, a quarter ahead of the low in the saving rate. The saving rate had risen by 1 pp by Q3 2023 and may increase further as the excess money effect wanes.<\/p>\n

*The headline measure of the US personal saving rate is calculated net of depreciation. A gross measure is used here to align with European convention.<\/span><\/p>\n

—–
\nCOMMENT:
\nAUTHOR: David Cotton
\nEMAIL:
\nIP: 81.150.175.79
\nURL:
\nDATE: 01\/23\/2024 04:23:34 PM<\/p>\n

Very interesting post. I think more pandemic fiscal stimulus is the answer as to why US consumption has outperformed the UK and EU.<\/p>\n

Not sure if that will effect further reflationary policy in future, but we'll probably find out.<\/p>\n

—–
\nCOMMENT:
\nAUTHOR: Josh
\nEMAIL:
\nIP: 193.108.73.47
\nURL:
\nDATE: 01\/24\/2024 07:39:22 AM<\/p>\n

Do you have any sense for the large differential in starting levels for the three regions? The UK stands out as having a significantly larger money stock.<\/p>\n

—–
\nCOMMENT:
\nAUTHOR: Simon Ward
\nDATE: 02\/08\/2024 12:27:02 PM<\/p>\n

The household financial wealth to income ratio is highest in the US (5.5) but US households hold the lowest proportion of their wealth in monetary assets (16%).
The UK is in the middle in terms of both wealth to income (3.8) and the share of money in wealth (27%).
The money share of wealth is highest in the Eurozone (29%) but wealth to income is lowest (3.3).<\/p>\n","protected":false},"excerpt":{"rendered":"

US consumers have trounced the Europeans – again. US personal consumption rose by 9.7% between Q4 2019 and Q3 2023 versus a 0.5% increase in the Eurozone and a 1.6% fall in the UK – see chart 1. Chart 1 The divergence probably widened in Q4, judging from retail sales. US sales rose solidly into […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-4705","post","type-post","status-publish","format-standard","hentry","category-money-moves-markets"],"_links":{"self":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4705","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=4705"}],"version-history":[{"count":1,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4705\/revisions"}],"predecessor-version":[{"id":7014,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=\/wp\/v2\/posts\/4705\/revisions\/7014"}],"wp:attachment":[{"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=4705"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=4705"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mmm.9dotdigital.ca\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=4705"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}