The old c.w. about the end of 2011 was that it represented a turn to growth driven by an unsustainable decline in the savings rate. But yesterday's modest upward revision to GDP also included a pretty large upward revision to personal-income numbers. As Mark Doms, chief economist from the Department of Commerce explains, that puts the sustainability of the consumer recovery in a different light. Here's what the revisions have done to personal income:
And here's the impact on the savings rate:
A modest decline in personal savings rates from the recessionary peak is what you'd expect and considering the public sector retrenchment it's probably a good thing. Of course, you never want to make an unconditional forecast. I don't think "rising oil prices" per se can derail the recovery, but an actual military confrontation with Iran certainly might. There's also the complicated interplay between rents, inflation, monetary policy, and housing investment. In principle what I'd like to see happen is a that few months of job growth in the 200K-300K range will lead to new household formation, leading to rising rents, leading to rising investment in the construction of rental housing. That means job growth accelerates, with people going back to work building apartments and selling furniture. The fear is that a few months of job growth in the 200K-300K range will lead to new household formation, leading to rising rents, leading to tighter money, to push job growth back down below 200K; and then everyone declares a "new normal" of 8+ percent unemployment and wages never rising.