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.