German Consumer Climate — Do Low Interest Rates Help Consumer Spending?

Most of the data from the GfK Consumer Climate study for Germany for September 2012 was depressing. But there was an unexpectedly positive part. Germans remain willing to buy things. GfK reports:

Alongside the still relatively stable labor market situation and good salary agreements, Germans' willingness to buy should benefit from the ongoing financial and euro crises. Consumers are still tending to invest their money in higher value purchases, such as real estate, rather than saving it in the bank. This is verified by the distinctly low propensity to save.

Saving money when rates can be as low as 1% is for suckers.

It is not hard to imagine that the same trend could take place in America. People who go to their own banks find that savings accounts and U.S. government paper are particularly poor investments. If Americans want to put their money elsewhere, the open question is where they will put it.

U.S. consumer confidence is not so different from that in Germany, which makes a parallel between consumers in the two countries more likely. Among the findings in the GfK Consumer Climate report is this:

The fear of German consumers that the economy will slip into recession did not increase further in September, as confirmed by the slight increase in economic expectations. The ailing economy has, however, affected income expectations, which dropped quite considerably.

Americans already have shown their worry about a recession. Those worries may not have leveled as they have in Germany. People in the United States only recently read Census data that showed that their incomes on average are below levels of five and 10 years ago. German concerns about income are somewhat similar to those in America.

Americans who do not want to save may be putting money into real estate, as they appear to be doing in Germany. That is a gamble that residential reals estate prices will recover. The U.S. housing market has shown some very tentative signs of recovery.

But will the low yield on savings cause American consumers to buy things that are more liquid than real estate? Among those things could be appliances and cars. Even a modest improvement in the demand for these kinds of goods could lift gross domestic product, the rise of which is under threat from gridlock in Washington and a nearly dead labor market.

Imagine if savings account yields helped buoy the fourth quarter.

Douglas A. McIntyre

Filed under: 24/7 Wall St. Wire, International Markets Tagged: featured