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Personal Income And Spending Both Miss Expectations, As Savings Rate Drops To 2010 Low

Tyler Durden's picture





 

One thing is sure to happen when Americans buy more iPads than they can afford: the savings rate will fall. Sure enough, the just reported September savings rate dipped to 5.3%, the lowest reading in 2010, and a decline from August's downward revised 5.6%. This is due to a miss in both personal income and personal spending, the former coming at -0.1% vs Exp. of 0.2 (and a prior revised to 0.4%) with the latter at 0.2% versus expectations of 0.4% (and an upward revised prior to 0.5%). The savings rate has now declined in a straight line since peaking at 6% (2010 high), to the current low. In other words Americans have been spending more than they were making for four months in a row. And on wonders why consumer discretionary names have been doing well... Luckily, it means that courtesy of Americans' savings decline by nearly 20%, there are only so many future landfill filling gadgets that will be bought going forward.

Personal Savings Rate:

The reason for the first 2010 negative print in personal income: expiration of unemployment benefits, aka free government subsidies to buy iPad apps:

The September change in personal income reflects provisions of unemployment compensation legislation, which had boosted emergency government unemployment benefits (within current transfer receipts) in August. Excluding emergency government unemployment insurance benefits, which are discussed more fully below, personal income increased $8.7 billion, or 0.1 percent, in September, following an increase of $33.9 billion, or 0.3 percent, in August.

Expect this drag to accelerate as more unemployed hit the 99 week limit, and more emergency benefits expire. 

 


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Mon, 11/01/2010 - 08:42 | Link to Comment papaswamp
papaswamp's picture

They will spend like mad into the holiday or until the credit card is cut off. Q1 2011 could be quite brutal especially if tax cuts aren't extended.

Mon, 11/01/2010 - 09:11 | Link to Comment MarketTruth
MarketTruth's picture

Maybe, just perhaps, some Americans have woken up to the problem with the Federal Reserve Debit Note (US dollar) and are removing their savings and buying physical gold and silver. This is multi-faceted as virtually no one i know trusts the dollar, no one trusts that their 401k will never be appropriated by the US government, etc.

Another facet is that we all know banks might guarantee $250k, yet even the FDIC has admitted they CAN NOT GUARANTEE THE VALUE OF THE DOLLAR. As such, liquidating things if they are in dollars such as savings and 401k and getting gold/silver makes sense.

And with QE2/TARP2 coming soon, this inherently means dollar value down further.

Mon, 11/01/2010 - 09:29 | Link to Comment papaswamp
papaswamp's picture

I agree some have done so. But, I suspect more of a minority than majority. Probably not enough to influence the data.

Mon, 11/01/2010 - 09:32 | Link to Comment MeTarzanUjane
MeTarzanUjane's picture

"and are removing their savings and buying physical gold and silver."

If Iran has converted a 15b fx pile to gold and the price of gold has not really surged. Do you really think individuals are buying gold? I'm sure Iran is not the only large purchaser.

Exactly. Where is all this gold coming from? MonkeyButt?

http://www.zerohedge.com/article/iran-announces-it-has-converted-15-its-...

Mon, 11/01/2010 - 10:25 | Link to Comment tmosley
tmosley's picture

Probably slurping up gold from the paper market.  There is a good deal of gold there, even if it is highly leveraged.  Physical silver, not so much.

Mon, 11/01/2010 - 08:43 | Link to Comment MeTarzanUjane
MeTarzanUjane's picture

How delicious. It's working. -iSavings for my bitchez, now cue the Ditech jumbo liar loan commercials and lets get the party started, again.

Mon, 11/01/2010 - 08:44 | Link to Comment 101 years and c...
101 years and counting's picture

Savings down.  Isnt that the goal by the central planning terrorists?

Mon, 11/01/2010 - 08:45 | Link to Comment SheepDog-One
SheepDog-One's picture

Cant have your ICake and eat it too.

Mon, 11/01/2010 - 08:53 | Link to Comment macholatte
macholatte's picture

 

Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.
Will Rogers

Mon, 11/01/2010 - 08:56 | Link to Comment DonutBoy
DonutBoy's picture

It is shocking that the savings rate is dropping, but just to be clear, it's not negative. This line "In other words Americans have been spending more than they were making for four months in a row" is not correct.  They have decreased their rate of savings.

 

Mon, 11/01/2010 - 08:58 | Link to Comment AnAnonymous
AnAnonymous's picture

If they bought it, that means they could afford it.

If they couldnt have afforded it, they would not have bought it.

Back to reality, sometimes.

Mon, 11/01/2010 - 09:53 | Link to Comment Eternal Student
Eternal Student's picture

Heh. Yeah, that reality worked out real well in 2006 with Housing, didn't it?

Mon, 11/01/2010 - 09:02 | Link to Comment the not so migh...
the not so mighty maximiza's picture

Savings down, spending down, incomes down.... Good Work Phd's

 

Mon, 11/01/2010 - 09:06 | Link to Comment snowball777
snowball777's picture

Like Phil Gramm?

Mon, 11/01/2010 - 09:12 | Link to Comment the not so migh...
the not so mighty maximiza's picture

Exactly, they should be ram-rodded(in anus) for all their successes in political life over so many years.

Mon, 11/01/2010 - 09:03 | Link to Comment Sudden Debt
Sudden Debt's picture

So income drops and spending drops also...

This is SO UnAmerican!

Why don't they spend 160% of their income anymore?

I don't get it...

Mon, 11/01/2010 - 09:04 | Link to Comment Sudden Debt
Sudden Debt's picture

As Benny B. would say: FREE CASH ANYBODY?!!

Mon, 11/01/2010 - 12:22 | Link to Comment RockyRacoon
RockyRacoon's picture

It's only free for a select few.  Others, not so much.

Mon, 11/01/2010 - 09:12 | Link to Comment centerline
centerline's picture

To me it seems like a combination of exhaustion, so few people not really understanding what is at risk, and rising cost of living eating away at disposable income.  The real issue though is deleveraging.  The consumer has not effectively been able to accomplish any significant level of deleveraging.  Further cost of living increases, any sort of rate increases, any further drop in income (hello to 99'ers out there), etc. and the shit storm will accelerate once again.  Deflationary spiral...

Mon, 11/01/2010 - 09:13 | Link to Comment Rogerwilco
Rogerwilco's picture

@centerline

"The consumer has not effectively been able to accomplish any significant level of deleveraging. "

Of course not, that is the last thing the banks want to see happen. Don't you know that we can inflate this balloon forever?

Mon, 11/01/2010 - 09:15 | Link to Comment centerline
centerline's picture

LOL... the irony, the irony!  This whole mess is one giant catch-22, isn't it?!

Mon, 11/01/2010 - 09:13 | Link to Comment SheepDog-One
SheepDog-One's picture

People are buying only what they need, nothing really surprising here. Those that stock up on food will avoid getting their head stomped in the coming food riots. For a while anyway.

Mon, 11/01/2010 - 09:21 | Link to Comment centerline
centerline's picture

The writing appears to be on the wall here.  As long as the food items are long dated or non-perishable, I think it is a great idea to stock.  A hedge against the risk of things "getting funny" for awhile, and a way to reduce future costs.  No harm done whatsoever in my opinion.

Mon, 11/01/2010 - 09:14 | Link to Comment Seer
Seer's picture

Well... MY savings dropped.  I bought property (traded trinkets [USD] for the property).  Clearly the idea is for people to circulate fiat dollars, purge themselves of it (actual interest on savings rate below zero when factoring inflation?).  I think it only good that people abandon the USD (actually, ANY fiat money).

Mon, 11/01/2010 - 09:24 | Link to Comment Oh regional Indian
Oh regional Indian's picture

PTB do not like savers.

Savers bad, spenders good.

A little TV (anecdotally, I'd like to see what the introduction of TV did to savings rates of nations that got TeeVeed late in life) and suddenly everyone is spending.

India used to be a saving nation. Now it's dying on the spending vine and the rotten fruit is getting bloated due to cheap credit. Please note, the cheap credit is only available for connedsumer spending. Try getting cheap credit to open a good business. Dry taps.

And it looks to me like the spike in savings from 07 is far more telling than this temporary drop. The whole graph tells a story (of panic).

2 little, too late!

ORI
http://aadivaahan.wordpress.com

Mon, 11/01/2010 - 09:41 | Link to Comment MeTarzanUjane
MeTarzanUjane's picture

I'm fascinated by your India tidbits. Hopefully all Indians in America will follow your lead and pack-up and go the fuck home.

Please adopt this cause in the fully digested philosophy that you excrete.

Mon, 11/01/2010 - 10:06 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Be nice to yourself MeT. All the bile in your system that you spew here is killing you.

That burn in your head is from unresolved anger. I suggest Yoga. Yes, it's Indian, but it'll do you good. Help you relax. Help you see that YOU are the asshole that you see in everyone around you. I'm just a mirror, you have the problem.

Be well my friend, and if the wart on your tongue  (I can see it all the way from here now) starts to fester, remember the Brahmin's curse.

ORI

http://aadivaahan.wordpress.com

 

Mon, 11/01/2010 - 10:54 | Link to Comment MeTarzanUjane
MeTarzanUjane's picture

You describe your disenchantment but you never go into what led to your journey to the USofA or as you say Amerika. The naive excitement that led you to compromise your pure Indian core. The ultimate failures that exposed who the real regional one is. And the disgust that made you pack your bags. I know the real truth will never be revealed as it will cast light on your primary character trait; hypocrite. The mirror is 2-way.

I for one am glad that you exchanged your USD's for rupees. Now go forward and recruit your countrymen to lick their wounds and return home to where they belong.

Mon, 11/01/2010 - 09:27 | Link to Comment Rider
Rider's picture

MYTH BUSTED:

"AMERICAN CONSUMER IS DELEVARAGING BY PAYING DEBT AND SAVING."

REALLITY:

AMERICAN CONSUMER IS FILLING for BANKRUPCy AND EXPENDING SAVINGS TO SURVIVE.

Mon, 11/01/2010 - 09:41 | Link to Comment Boilermaker
Boilermaker's picture

Of course, this is insanely bullish for the REITs as they soar out-of-the-gate again today.  You know, just to make damn sure it's completely fraudulent bullshit.

Mon, 11/01/2010 - 09:42 | Link to Comment Djirk
Djirk's picture

NG.....not good.

Was the increase in savings rate driven a lot by bankruptcies? In aggregate the consumer balance sheets (savings rate) improved from defaulting on debt? Not saying that is a bad thing for consumer cash flow.

They should slap the M2 chart over that to show the lack of correlation to income, savings and spending.

 

Mon, 11/01/2010 - 09:53 | Link to Comment nopat
nopat's picture

We picked this up in last week's GDP number, not too surprised.  Just on a lark, I wonder how much of this is due in part to homeowner refi.  Over the summer I know a lot of non-conforming mortgage investors were pushing used-car salesman hard to get homeowners repapered by extending the interest-only period out another 5 years and lowering interest down to some ridiculous rate (2.5%, 3.5%, etc), probably knowing homeowners were both hung out to dry just long enough to see any offer as a way to get out from underneath themselves and entirely blind to the kinds of exposure faced by these companies.  They [the homeowners] would be "dumb" enough to willingly pay a service fee to take this only-read-in-cheap-hollywood-scripts contract leverage off their hands if it meant they could fulfill their morally and legally obligated responsibility to uphold a promise the counterparty had absolutely no intent on keeping.  I'd be furious if I weren't so impressed, but I digress.

Assume for a second both the servicing fee and average mortgage payments are $2k.  Doing a million of these gets them $2B in up-front cash, plus (at least in theory) several months of mortgage payments that would otherwise not exist and the ability to show FASB a piece of paper validating the value of the bullshit paper they're carrying on their books.  Possible?  I don't know; given the speed they were rifling through foreclosures, anything is within the realm of possibility at this point.

What is funny is that in "The Quants", they talk about how the new hotshit quants of the early 90s killed Liars Poker.  Funny thing is they didn't.  It's alive and well, Wall Street just took its game somewhere else where the players were a hell of a lot dumber and had a hell of a lot more money to throw in the pot.

Again, just thinking out loud.

Mon, 11/01/2010 - 09:53 | Link to Comment trav7777
trav7777's picture

Saving is anti-american.  Doing it means you are siding with the terrists.  You're an enemy of the State.

We need to spend so we don't go bankrupt.

Mon, 11/01/2010 - 10:00 | Link to Comment RocketmanBob
RocketmanBob's picture

Does the savings rate decline necessarily mean people were spending more than they make?  I personally don't think it's a one to one correlation.  About all that can safely be assumed based on the numbers alone is that, you know, they aren't putting as much away.

But, your observation about extended unemployment benefits ending for is right on the mark.  So based on that constituent relationship it's probably pretty safe to presume that at least some people are spending more than they make.  But overall? No.

 

Still, as many in this comment thread note, they might as well be considering that the coming QE2 wave promises to inflate that debt away.

 

What will stop the Fed short of eliminating it?  Will Paul's coming Chairmanship of the house banking committee, and with the near metaphysical certitude of a Fed audit, have any real effect?

Mon, 11/01/2010 - 10:06 | Link to Comment wiskeyrunner
wiskeyrunner's picture

 

As usual Sunday night I saw the Dow mini futures run up 60 points on a little more than 200 contracts, right at the open. I suspect we see a 40 point range once SPY and DIA open with the cash markets. This same MO has been going on for months. Gap open SPY and sit in a 3-4 point range for 5 hours on light volume. The SP500 is in the same spot it was in March. Last night the SP futures opened with in a few points of were it opened Sunday October 24th. We are exactly in the same spot as we were last Monday @ 9:00am cst, spot on the money.

Pull up your intraday day 30 minute chart and have a look at SPY were it is now. The exact same price as last Monday this same time. 119.52.

 

 

Mon, 11/01/2010 - 10:15 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Wow! 

Happy coincidence I'm sure!

ORI

http://aadivaahan.wordpress.com

Mon, 11/01/2010 - 10:25 | Link to Comment Dollar Bill Hiccup
Dollar Bill Hiccup's picture

Ah, markets are now following the logic of spam. Not email, but Monty Python.

You can order anything you want, and you will be served spam.

Mon, 11/01/2010 - 10:44 | Link to Comment juno9604
juno9604's picture

Retail Sales Ex Cars and Gas are rising at a soporific .52% per month in 2010 - that's less than replacment-only buying would be.  Consumer Credit has printed positive only 2 times in the past 21 months.  The notion that the "bad" consumer is buying beyond their means is not what's going on here.  Spending was up on .2% and Income was down .1% in Sept and has not printed over 1% since May 2009.  Better not look to Consumers to bail out the economy by going on a buying spree - not happening now or in forseeable future.  Banks refusing to lend money to any but their own and to overseas is the undertow in the U.S. economy. 

Mon, 11/01/2010 - 12:35 | Link to Comment RockyRacoon
RockyRacoon's picture

I understand that "savings" is calculated by simply looking at the spread between income and "spending".   If that is actually true, then the reported savings rate tells us nothing.

If my understanding is incorrect that so am I.

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