Normally, conventional wisdom tells us that 'saving money is good' and 'spending money is bad'. We tend to view people who are natural savers as financially responsible, and those who perhaps struggle with keeping their wallets shut as financially reckless.
But according to reporting in the Australian Financial Review (AFR), it's the savers in our economy that might be causing some problems.
Whilst saving on a personal level is usually the more respected activity, the reality is that its spending that makes the economy go round. Every dollar spent is someone else's income, as the saying goes.
According to the AFR, saving rates not just in Australia, but across the advanced economies of the world, have ballooned as a result of the coronavirus pandemic. Economic uncertainty and the prospect of lost employment, together with ambiguity over how long various government support programs will last, have resulted in plenty of belt-tightening.
Eurozone households have reportedly bumped up the percentage of disposable income saved on average to 16.9% in the first 3 months of the year. In Britain, it's up from 5.4% to 8.6%. And in the United States, savings rates rose from 7.9% to more than 32% by April.
We already discussed the impacts of higher saving on economic growth. But it's also presenting a headache for governments. If consumers suddenly start spending again, it could overheat the economy and lead to inflation if the government stimulus keeps flowing. But if consumers don't start spending, then permanent economic damage is on the cards. This would be greatly exacerbated in my view if the government cuts off support payments like JobKeeper in September.
What does higher saving mean for ASX shares?
Consumers saving more is not good news for ASX shares. Whether consumers are planning on loosening their purse strings over the next year or 2 is going to have far-reaching consequences for the earnings of many ASX businesses.
If you hold ASX retail shares like JB Hi-Fi Limited (ASX: JBH) or Premier Investments Limited (ASX: PMV) or really any consumer discretionary companies, I think it's very important to keep on eye on these kinds of economic figures going forward.
Consumer staples companies and utility providers are better positioned though. Consumer staples providers like Woolworths Group Ltd (ASX: WOW) and utilities like AGL Energy Limited (ASX: AGL) tend to provide 'needs' rather than 'wants'. This means demand for their products is less dependent on savings rates and economic growth.
But regardless of which companies you invest in, I think it's important to keep an eye on what's happening in the economy. It's the ocean that all ASX shares swim in, after all.
