US consumer and the savings rate

Interesting piece from BofA "The myth of the Overleveraged Consumer" in their Situation room 10th August. They stratify US consumers into lower income, middle class and wealthy (top 10%) and analyse spending and savings patterns. The piece highlights that the middle class and wealthy account for almost 86% of US consumption and the top 10% (42% of consumption) are responsible for almost all of the reduction in the US savings rate seen over the past decade or so: as they let their assets (stocks and houses) effectively save for them.

The authors also argue that while the middle class have been disproportionately hit by the popping of the housing bubble and the low income group by the collapse of employment, the wealthy are somewhat sheltered both by their relative lack of exposure to housing (accounting for 25% of their assets) and the reasonable safety of employment.

The piece concludes by saying that one should not necessarily see the US consumer as over leveraged and unable therefore to drive a spending rebound. It also warns againts tax policies (needed to finance the bail out) that could change that. 

What the piece doesn't discuss is: i) the exposure of the wealthy to a risky asset (i.e. stock market) collapse; ii)the effect of disaggregating the wealthy into the super wealthy and wealthy (median income for the group is $201k, the mean is $398 k); iii) the apparent fact that the US now has a bankrupt middle class and is massively exposed to the wealthy saving to replace lost asset value and driving the consumption collapse and the super wealthy running to escape tax increases.

Finally if Rosenberg is right we are now exactly where the US was pre the Wall Street Crash in 1929. The US then was driven by a tiny group of consumers who controolled almost all discretionary income. the crash wiped them out and their disappearance drove the crash. Now the "wealthy" are the drivers of discretionary consumption.

The author, Jeffrey Rosenberg, called the housing crisis relatively early and has a habit of picking up interesting macro ideas. A an aside the piece also has an interesting compaerison between the US and Chinese consumer.