According to the Bureau of Economic Analysis and its monthly report on Personal Income/Spending, in the past few months, US consumers have cut back on big-ticket purchases and expenses and started saving for a change. Nominal consumer spending decreased 1.0% for the month of October, the largets decline since September 2001, after a 0.3% decline in last month. The number was inline with economists estimates, as a loss was foreshadowed by the worsening financial crisis and severe consumer pullback in October. Adjusted for inflation, real consumer spending was down by 0.5 percentage points.
Personal income rose 0.3% in October after a 0.1% gain in September. Analysts were looking for a 0.1% income gain for October. Real disposable income, or after-tax income adjusted for inflation, rose 1% in October.
With income rising faster than spending, the personal savings rate rose to 2.4% in October, up from 1.0% in September.
The foundation of every successful economy begins with savings. If there’s no national savings, where is the money for investment going to come from? A high national savings rate, not low interest rates or a large money supply, is essential for long-term economic growth. It’s good to see that there is a silver lining to this mess. Hopefully, the increased savings is a permanent trend, and not just a temporary phenomenon.
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