III. Aggregate Consumption, Savings, and Investment
This section of the North Carolina Economic Forecast 1999 presents five articles which examine U.S. aggregate consumption, savings, or investment. The first two articles focus on consumption expenditures. The third article in this section examine aggregate saving. The fourth and fifth articles present forecasts of investment. All the forecasts in this section are for 1999 and 2000.
Tignor forecasts consumption with a Keynesian consumption function. His explanatory variables are lagged consumption and lagged GDP. He forecasts 3.5 percent annual real consumption growth for 1999 and 4.1 percent for 2000.
Esser and Finley forecast consumption based on real durable goods expenditures. Because real durable goods are a form of household investment, this approach can be interpreted as relying on the household budget constraint accounting identity, that household income equals consumption plus investment plus taxes. Real durable goods expenditures can also be understood as a leading indicator and a measure of consumer confidence, and would be justified as an explanatory variable for forecasting even in the absence of the accounting identity. Esser and Finley forecast 3.5 percent growth in real consumption spending in 1999 and 3.35 percent in 2000.
Simes and Carter focus on saving, using lagged unemployment rates as the explanatory variable. They predict saving will fall 44 percent in 1999 and 33 percent in 2000. This appears consistent with high consumer confidence and the present, historic low saving levels. The savings rate has been negative for some quarters during the 1990s.
Shook performs two forecasts of real investment expenditures; one based on past interest rates and and one based on past GDP. He predicts very small changes in investment over the next two years based on past interest rates, but a 20 percent increase based on GDP.
Anderson and Bell also predict investment, forecasting a healthy increase of 4 percent in 1999 and 9 percent in 2000.
The five forecasts presented in this section all indicate robust economic growth. Although a further fall in real saving is neither favorable nor sustainable, Congress has the opportunity to incorporate measures to encourage saving in tax law revisions currently being considered. Social security reform can also be used to address this issue.
Other than the low savings rate, there is very little to be concerned with in the area of consumption, saving, and investment.