Wednesday, December 22, 2004

Today's release of the finalized quarterly GDP data for 2004:III makes it official. From July to September 2004, the US personal savings rate tied the lowest quarterly mark since quarterly data began in 1947.

In 2004:III the amount of income (from labor, rent, capital and transfer payments -- and that income includes employer contributions to pension and insurance plans) that Americans did not spend on consumption, taxes, interest or "personal current transfer payments" amounted to a paltry $42.6bn, or 0.5% of income. This is an annualized figure, however, so the real number is more like $10.7bn. For the quarter that comes out to an average savings out of income of about $12 a month for every man, woman and child in the United States. Twelve dollars. Except for the quarter following 9/11 (more about that below), you have to go all the way back to 1966 to find a nominal dollar figure this low!

The only other time US savings were scraping this low was 2001:IV, during the consumer binge aftermath of 9/11 when President Bush, Mayor Guliani and the rest encouraged Americans to overcome their grief, fear and horror through SUVs, restaurant meals and theater performances. For October-December 2001 the savings rate was also 0.5%, with the quarterly dollar figure at an annualized $40.5bn. But the ultra-low 2001:IV followed a comparatively high savings rate in 2001:III of 3.4%, a level the US consumer hadn't saved at since 1999. Assuming safely that much September 2001 consumption was delayed until the following months, the average savings rate for 2001:III-IV comes to 2.0% -- quite normal (unfortunately) for this period.

So what is our excuse now? If Americans were simply delaying spending in 2001:III to binge in 2001:IV, how to we justify a 0.5% savings rate today? Shall we pat ourselves on the back for saving a whopping 1.3% of our income the quarter before? Are we rightfully compensating for the trauma of higher 2004 gasoline prices?

That infamous bumper sticker seen on enormous RVs, "We're spending our children's inheritance", should be plastered over this entire economy.


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