Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

US Savings Rate Hits 6.9%, Highest In 15 Years

Economics / Recession 2008 - 2010 Jun 26, 2009 - 10:50 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticlePersonal incomes are rising reflecting tax cuts and consumer spending is up as well, notably car sales. However, consumers are still struggling to fix their personal balance sheets, currently overloaded in debt.


Please consider Surging U.S. Savings Rate Reduces Dependence on China.

In the recession following a borrowing binge that sent consumer debt to the highest level ever, Americans are shutting their wallets and building their nest eggs at the fastest pace in 14 years.

While the trend will put the country’s finances in better balance and reduce its dependence on Chinese investment, it may also restrain economic growth in 2010 and beyond, said Lyle Gramley, a senior economic adviser with New York-based Soleil Securities Corp. and a former Federal Reserve governor.

“There’s been a fundamental change in people’s behavior,” he said. “It will affect the economy for years.”

Government data today showed that the household savings rate rose to 6.9 percent in May, a 15-year high, as personal spending increased less than incomes. The rate in April 2008 was zero.

Americans’ newfound frugality is pinching airlines such as Chicago-based UAL Corp., which is cutting staff amid dwindling demand for leisure travel. Donations to charities dropped last year for the first time since 1987, and they’re in danger of declining further in 2009.

Banks are benefiting. Deposits grew 1.7 percent in May, the ninth-biggest monthly rise since 1973.

The bigger cash reserves will lessen U.S. dependence on investment by China and other foreign countries to finance economic growth, Gramley said. The current-account deficit, which includes trade in goods, services and income transfers, narrowed in the first quarter to its lowest since 2001 as Americans saved more and brought fewer imports.

Banks are already gaining from American’s thriftiness. Fed data show that deposits at commercial banks stood at $7.5 trillion in the week ended June 10 after recording the biggest monthly increase of this year in May. “They’re getting cheap deposits,” said Allen Sinai, chief economist at Decision Economics in New York. “It’s part of the healing process.”

Rebuilding Balance Sheets

From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, government figures show. Americans got out of the habit in the 1990s as they saw their wealth build up in other ways, first through surging stock prices and then soaring home values, Gramley said.

Retailers are adjusting their strategies to reflect that new reality of a permanently higher savings rate. Saks Inc., Neiman Marcus Group Inc. of Dallas and other luxury businesses are reducing orders this year to limit supply and boost profitability.

“Across the board you are going to find less of the sizes, less of the availability in almost all of the categories,” Saks Chief Executive Officer Stephen Sadove said in an interview on June 23.

Roubini is concerned the savings rate will rise too quickly.

Nouriel Roubini, an economics professor at New York University and chairman of RGE Monitor, forecasts that the savings rate will ultimately reach 10 percent to 11 percent. What’s critical, he said in a Bloomberg Television interview on June 24, is how quickly it increases.

A rapid rise in the next year because of a collapse in consumption would push the economy, already in its deepest contraction in 50 years, further into recession, he said. If it occurs over a few years, the economy may grow.

Edmund Phelps, winner of the Nobel Prize in economics in 2006 and a professor at Columbia University in New York, said it may take as long as 15 years for households to rebuild what they lost in the recession.

“The only way we’re going to get a healthy, full recovery is over a long period of time, involving households rebuilding their balance sheets,” Phelps said in an interview on June 22 with Bloomberg TV. “There’s no silver bullet that’s going to get us into good shape quickly.”

On this issue I side with Phelps.

The increasing savings rate is a good thing not a bad one. The faster the savings rate rises the better off we will be in the long run.

Fortunately consumer attitudes towards debt have changed and changed for good, something that many have told me would never happen. Retailers are now adjusting for this new reality.

Consumer Spending Stabilizes, Incomes Rise, Wages and Salaries Drop

Bloomberg is reporting U.S. Consumer Spending Rose, Incomes Gained in May.

Consumer spending rose for the first time in three months in May as incomes jumped by the most in a year, a sign that government efforts to revive the economy may be starting to pay off.

The 0.3 percent gain in purchases followed no change in April, the Commerce Department said today in Washington. Incomes surged 1.4 percent, reflecting tax cuts and Social Security payments from the Obama administration’s stimulus and driving up the savings rate to a 15-year high.

Wages and salaries dropped 0.1 percent in May, showing the effects of mounting job losses.

Today’s report also showed inflation moderated. The price gauge tied to spending patterns rose 0.1 percent from May 2008, the smallest gain since records began in 1959. The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from a month earlier and was up 1.8 percent from a year earlier.

Adjusted for inflation, spending climbed 0.2 percent, following a 0.1 percent drop the prior month.

U.S. auto sales rose to a 9.9 million-unit rate in May from 9.3 million the prior month. Industry estimates for June show the rate may exceed 10 million for the first time this year.

Car sales will rebound, but it's important to remember how depressed the current level is. Moreover, a significant portion of sales this year will be profit-losing sales as dealers cut prices to clear inventories. These sales will cut into demand for 2010 as will the silly as well as wasteful, cash for clunkers plan.

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Thinkinghard
27 Jun 09, 09:20
Savings and deposits

Mike,

Thank you very much for as ever informative post. I've been thinking re savings rate going up and it occurs to me there is something odd here.

The macro data leads us to believe that increased savings translate into higher deposits with the banks. This in turn will plug the hole in USTs as foreigners retreat. Brilliant!

It strikes me as being too easy. Are we to believe that consumers are happy to park their cash in CDs at essentially zero rates while paying double to triple digits on credit cards? Hard to imagine and does not add up with the data showing consumer debt shrinking. Then who is really behind the growth in bank deposits? Any thoughts will be very much appreciated.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in