Thursday, December 22, 2005

A little note on US personal savings

The good news is that it appears to be that Joe and Jane Consumer's descent into the nether-regions of debt-for-consumption has moderated. The bad news is that the new equilibrium is still negative.
Personal outlays -- PCE, personal interest payments, and personal current transfer payments increased $25.9 billion in November, compared with an increase of $14.0 billion in October. PCE increased $25.3 billion, compared with an increase of $13.4 billion.

Personal saving -- DPI less personal outlays -- was a negative $19.1 billion in November, compared with a negative $18.3 billion in October. Personal saving as a percentage of disposable personal income was a negative 0.2 percent in both November and October. Negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods.
While US households are no longer in the debt-fest days of the summer when they went into yet another car-buying frenzy, November's negative personal savings rate makes it a solid half year -- six months in a row and seven of the last eight months -- of dissaving. Call it a "consumer binge" if you like.

This consumer binge is not only dependent on debt. It is also dependent on exceptionally low inflation. Overall annual PCE inflation in November ran at just 2.7%. Core annual PCE inflation (minus food and energy) is a meager 1.8%. After peaking at 2.0% in the summer, core PCE inflation is now trending downwards again. Durable goods deflation is persistent -- as it has been since 1995 -- but has significantly picked up pace over the last six months, with help from deflation in imported consumer durables (running at a -0.2% pace y-o-y).

Try as it might, the Fed just can't get Americans to stop buying. We're now on track for an annual 2005 personal savings rate of -0.4%, the lowest rate since 1933 -- the depth of the Great Depression. Remember that.

33 Comments:

At 10:02 AM, Blogger Emmanuel said...

Try as it might, the Fed just can't get Americans to stop buying.

Methinks the Fed is heavily politicized and wants Americans to continue the nonstop assault on fiscal prudence. Remember those figures that indicated GDP would be flat instead of at 4.1% had consumers not engaged in their nonstop dissavings? I think that the current attitude of "no savings for a rainy day" is largely by design.

Greenie tries to wash his hands of this dubious legacy of dissavings, but when consumers finally reap the whirlwind, nobody will be more at fault than the bubblemeister himself.

 
At 1:20 PM, Anonymous Michael Cain said...

Is the data available to break down the savings rate by wealth quintile? Is the ongoing decline in the savings rate being driven by the rich or the poor? How does it correlate, if at all, with the various asset bubbles that have occurred in the last 15 years? Capital gains don't count in the national accounting version of savings, but a capital gain equal to 10% of income looks like savings to an individual household.

 
At 3:29 AM, Blogger Epimethee said...

Yeah but how insured is a "capital gain". The stock Market is again very much overvalued with PER still way over 14 (historic mean), somewhere around 19 now.
The housing market has been in a bubble for 4 years.
All these are illusory gains in price, higher prices that can be sustained only as long as the speculation on rising price goes... So...

Anyway, general, have a check at Calculated risk, and try to forecast what economic growth awaits us, once saving rates start to come back to the normal.

Let's think in another way, back in the 30's, faced with a revenue shock, consumers dissaved. They used their cash to buy food and stuff.
Ok.

Now in 06, if there were a revenue shock. What could US consumer do ? There's little savings left to tap.
So ?

THey'll sell assets.
So do you think the magnitude of the fall in asset price will be higher or smaller in the 00's than in the 30's ?

I think the USA are going to truly feel what the word flexible means...

 
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At 3:57 PM, Anonymous Anonymous said...

'binge is not only dependent on debt. It is also dependent on exceptionally low inflation'

Don't follow. Won't all our negative saving create a vocal demand for lotsa inflation to erode the accumulated debt? (or for interest rate relief amounting to the same thing)

 
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