After first experiencing a sharp rise after the crisis from negative savings levels, the savings rate dipped putting the whole thesis into question by some. My hypothesis had been that consumers were dis-saving again because falling wages. Well look at what has now happened. From the Bureau of Economic Analysis:
Personal income increased $3.0 billion, or less than 0.1 percent, and disposable personal income (DPI) increased $5.1 billion, or less than 0.1 percent, in June, according to the Bureau of Economic Analysis.
Personal consumption expenditures (PCE) decreased $2.9 billion, or less than 0.1 percent.
In May, personal income increased $40.5 billion, or 0.3 percent, DPI increased $36.9 billion, or 0.3 percent, and PCE increased $8.6 billion, or 0.1 percent, based on revised estimates.
Real disposable income increased 0.2 percent in June, compared with an increase of 0.4 percent in May. Real PCE increased 0.1 percent, compared with an increase of 0.2 percent.
Calculated Risk has the nice graphics and the money quote:
This graph shows the saving rate starting in 1959 (using a three month trailing average for smoothing) through the June Personal Income report. The saving rate increased to 6.4% in June (increased to 6.2% using a three month average).
Consumers are trying hard to rebuild their balance sheets. Increased savings means reduced consumption. Reduced consumption means less profits for consumer centric companies and less consumption taxes. The worry is that it also means a slower economy due to lower spending. If we are to restructure how the economy operates, that may nor be a bad thing.
do you think this points to deflation?
ReplyDeleteWe are rapidly approaching that bound. If we slip into recession I think it will be unavoidable. Watch the data for August and September. It is a nearer thing than most people think, certainly the stock market.
ReplyDeleteLook for the Fed to renege on its promise to shrink its balance sheet and rather to start a (small) new quantitative easing program.