According to the Bureau of Economic Analysis and its monthly report on Personal Income and Outlays, in the past few months, US consumers have cut back on big-ticket purchases and expenses and started saving for a change. After adjusting for a 0.5% decline in prices, real consumer spending decreased 0.5% for the month of December, following a 0.3% gain in the previous month. The number was inline with economists estimates, as a loss was foreshadowed by the worsening financial crisis and a severe consumer pullback in December. It was the sixth decline in real spending in the past seven months.
Nominal personal incomes fell 0.2% in December, after a 0.4% decline in November. Real disposable income, after-tax income adjusted for inflation, rose 0.3%.
With income rising faster than spending, the personal savings rate rose to 3.6% in December, the highest since May, when savings were boosted by tax-rebate checks.
“Apart from the disruptions caused by the recent tax rebate checks, the Microsoft special dividend, and the 9/11 terror attacks [it’s] the highest level since 1999,” said Harm Bandholz, an economist for UniCredit Markets.In driving the savings rate higher, consumers have reduced their spending by about $400 billion from what it would be with a zero savings rate, said Tony Crescenzi, chief bond market strategist for Miller Tabak & Co.
The foundation of every successful economy begins with savings. A high national savings rate, not absurdly-low interest rates or an enormous money supply, is essential for long-term economic growth, as it results in increased investment. 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.
See Full Report.