Millennials — the selfie obsessed, avocado toast-loving generation — might be behind slower economic growth, according to a research note last week from Raymond James. This new generation, scarred by the financial crisis, is saving more than the free-spending boomers did before them, and it’s causing an economic imbalance.
According to data from the St. Louis Federal Reserve, the current U.S. personal savings rate, defined as income minus spending, is 8.1% as of August. By comparison, in 1996 the rate was 5.7%.
“The higher savings rate, we believe, has had 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,” Raymond James analyst Tavis McCourt wrote in a note to clients Thursday.
One of the earliest financial lessons people learn is that saving early and often is key.
However, while saving is beneficial for individuals, a slowdown in spending hurts businesses and therefore the economy. Since the recession “supply increases have continued,” which coupled with a higher savings rate has led to “excess supply seemingly everywhere in the economy,” McCourt notes.