Signs of consumer vulnerability (Jul 07)

The data released over the last month have suggested that the consumer recovery is built on shaky foundations. Although the housing market looks a bit stronger than a month ago, the National Accounts revealed that real household income fell for the second consecutive quarter in Q1. Accordingly, spending was financed entirely by households running down their saving, which pushed the saving rate down from 3.9% in Q4 to a record low of 2.1%. At some point, households will need to rebuild their savings at the expense of spending.