Millennials seem to be always to blame for the death of certain industries and businesses, like casual dining and the “starter homes” market. But should this smartphone generation also be blamed for the country’s sluggish economy?
According to recent research, millennials (people who are born between the 1980s to the mid-1990s) are possibly the cause of the United States’ slow economic growth. Being the generation that is heavily burdened by huge debt and low salaries, millennials are putting more money into their savings than spending that money on other things.
Comparing this behavior with the free-spending generations that came before them, it may be causing an imbalance in the economy. In fact, data from St. Louis Federal Reserve shows that the U.S. personal savings rate is 8.1% as of last August compared to a 5.7% rate way back in 1996.
“The higher savings rate, we believe, has had a disinflationary impact, driving the relatively slow growth and low inflation in this recovery … causing the incentives for excess supply, and disinflation/deflation biases in the global economy,” Travis McCourt, an analyst at Raymond James, noted to his clients last Thursday.
Less spending, more saving
The first financial lesson that people typically learn is to save money early on in their lives and do it frequently. But even though putting money into a savings account is advantageous to individuals and families, spending less is hurting businesses, which, in turn, affects the economy.
McCourt adds that “supply increases have continued” since the recession. But with more people saving money, “excess supply seemingly everywhere in the economy.”
“This leads to frustratingly low growth, deflationary biases in prices, excess supply, and increasing debt from the supply side attempts to improve the situation because the savings rate is going higher,” he stated.
McCourt points to the new generation for the higher savings rate. Millennials are saving more money due to the financial crisis, a habit that is gaining more and more importance as the baby boomer generation dies out.
What we are seeing now for the United States and the rest of the world is an imbalance with supply and demand. China, in particular, is also facing a high savings rate against low spending behavior.
“So, what we have is a global increase in personal savings rate, which has caused excessive supply increases globally, and U.S. consumers wanting to save more, which makes trade deficits less severe than they would be otherwise, growth to be slower than expected for both economies, and inflation to be lower than what it would be otherwise,” McCourt adds.