While few outside of Texas and North Dakota are complaining about this huge savings that consumers have enjoyed since energy prices began falling last summer, economists have been stumped recently trying to figure out exactly what consumers are doing with the windfall.
They have not gone on a shopping spree at the mall or online. Results at many retail chains have been mixed, and some stores that are middle-class fixtures, like Sears and J.C. Penney, continue to struggle.
One hint at what consumers might be thinking came Monday, when new government data on the economy showed a healthy gain for wages and salaries in January, even as spending by consumers inched lower for the second month in a row. As a result, the savings rate ticked upward to 5.5 percent, the highest level in just over two years. ...
A more fundamental explanation [the] reluctance to spend now is what’s known in economics as the permanent income hypothesis, developed by Milton Friedman when he was at the University of Chicago in the 1950s. His theory suggests that consumer spending is determined by what people expect to earn over the long term. So temporary gains like savings on gas or a one-time tax cut don’t alter underlying patterns of consumption.