While the savings rate ticked up to 2.6% in February, it’s still a fraction of the long-term average, and in January, the personal savings rate fell to 2.2%, the lowest level since the summer of 2007. In addition, the US savings rate has now dropped by more than 1% over the past year, meaning it does not have much more room to fall and won’t be able to prop up consumption much longer.
What’s the upshot for investors? In the absence of a stronger labor market and more income growth, I would expect some slowdown in US growth this quarter. If that happens, consumer companies are particularly vulnerable as their valuations already reflect a lot of optimism about the state of the US consumer.
As such, I continue to advocate reducing positions in consumer-related sectors, and looking to put new money to work in international markets, mega caps and the energy and technology sectors.
Russ Koesterich, CFA, is the iShares Global Chief Investment Strategist.