For a sustained expansion to take hold, growth in private final demand – notably, consumer spending and business fixed investment – must ultimately take the lead. On the whole, in the United States, that critical handoff appears to be under way.
However, although private final demand, output, and employment have indeed been growing for more than a year, the pace of that growth recently appears somewhat less vigorous than we expected. Notably, since stabilizing in mid-2009, real household spending in the United States has grown in the range of 1 to 2 percent at annual rates, a relatively modest pace. Households’ caution is understandable.