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
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.