Friday, December 22, 2006

The indefatigable consumer

Apparently it's all coming up roses on the consumer spending front, yet shouldn't the following continue to be causing somebody in high places some concern?
Americans earned and spent more as the holiday season began, reinforcing the role consumers will play in extending the economic expansion to a sixth year.

Spending rose 0.5 percent in November, the most in four months, and incomes increased 0.3 percent for a second month, the Commerce Department said today in Washington.
Yes, income was up, but spending was up more -- a lot more -- in November. Personal income rose $33.8bn while personal consumption expenditures ran up $50.5bn. No surprise then that the personal savings rate took another plunge, down to -1.0%, the reversal of a late summer-fall trend toward more savings (or actually less dissaving).

If the personal savings rate in November had simply remained where it was in October (at -0.7%), consumption would have been $27bn less than actual, which would have dragged down the growth in consumption from the actual 0.5% to 0.2%. I doubt the press would have been crowing then. If personal savings had magically reached simply zero in November, consumption "growth" would have been -0.5%.

Is this fuelled by rising debt? Equity withdrawals? Selling the family jewels?


At 7:00 PM, Anonymous Anonymous said...

SL Fed savings chart at:

Savings have been dropping since about 1983. Given that some folks are still saving, others really must be hitting the MEW. Can't go on forever...but then it seems to. Average equity is at record lows but I guess the runup created enough "wealth" that it will take a while longer to impoverish ourselves.


At 7:56 PM, Anonymous Anonymous said...

That which can't go on won't. Yet we seem to have data sets that keep marching off a cliff. Perhaps things are not what they appear, i.e., the current methods for assessing savings, spending (and a host of other economic data) are no longer accurate.

At 6:47 PM, Anonymous Kett82 said...

I find it interesting that mortgage debt more than doubled from $494 billion in 2001 to $1,139 billion in 2005. The same years marking a precipitous decline in the personal savings rate. In the past year as the savings rate turned negative, mortgage debt increased 200 billion from $986 billion in 2004.

Would it be fair to say that U.S. Consumers have transferred their savings into housing? If so, let's hope that housing is a good investment.

At 8:52 AM, Blogger Guy Barry said...

I would agree that consumers have transferred their savings into housing,don't you

At 7:32 PM, Anonymous Anonymous said...


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At 4:08 PM, Blogger hopeforusall said...

As long as BIG BUSINESS and their cousin, the corporate United States of America are running things, forget about saving money, they will get it one way or another.

At 4:20 AM, Blogger Mark said...

This comment has been removed by the author.

At 5:25 PM, Anonymous Frank the sales forecaster said...

The "savings" rate is a bogus measure of the economic health of households. The definition of "consumption" includes transactions that improve household financial health (i.e. accepting your employer's 401k match or switching to a 15 year mortgage that saves lots of interest expense but has a higher monthly note both reduce your "savings.") Saving SS by moving the income cut off up reduces "savings" as your SS contribution is "consumption."

Just wait till 2013 when the baby boom starts to retire en mass and their "consumption" is paid for from sources of cash that are not "income" for NIPA purposes. The IRS will tax it, but the NBER won't count it as "income." As more and more boomers retire "consumption" will come to be considerably greater than "income."

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At 10:27 PM, Anonymous Sam said...

They used to just call it an "end of the world" party. Check out the articles on millenials and their optimism, people actually think everything will be fine if they believe it will be fine, etc. No big shock the consumer is financially illiterate, if this were not the case half of these retailers would have gone under years ago.

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At 4:26 AM, Anonymous structured settlement cash said...

I'm starting to worry that this economy is mysteriously stronger- either through truthful data or otherwise- than we had suspected. In spite of a host of unprecedented challenges, including a collapsing housing market and exploding energy costs, the U.S. consumer still seems fully committed to keep using debt to buy stuff. And buying stuff is what makes this country tick. And for all that, it was an awful day for the bears, with a rise on the Dow far in excess of 200 points.


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