Savings Rate Remains At Lowest Since 2008 As Impact From "Squatters' Rent" Increasingly Negligible
Today's Personal Income and Outlays data confirmed that the plight of the US consumer is deteriorating: while Personal Income increased at a 0.4% M/M rate, in line with expectations and flat adjusted for inflation (under 0.1%), Spending missed consensus of 0.5%, instead rising at 0.4%, the same number as predicted by Goldman previously. What is notable is that the "rental income" which as was discussed previously is not remotely based on "rents" but to a big part comes from "squatters rent" or pseudo income as a result of not paying one's mortgage continues to have an increasingly mitigating impact, rising just $3.1 billion in April, following $8.4 billion in March. As expected, the economic "benefits" arising from those who don't pay their mortgage are starting to have an increasingly lesser impact. This is very bad news for the economy, as sooner or later those living rent and mortgage free (even in New York where the average foreclosure process takes 900 days, meaning 2.5 year of mortgage free living) will have to start paying for the roof over their head, which will have a massive impact on disposable income, and will result in a wipeout of one of the best performing sectors to date: consumer discretionary. Lastly, as expected, courtesy of a ramp in Spending in recent months, not offset by Income, the savings rate, which was at 4.9% in April, the same as March, is at the lowest level since October 2010. In other words, even as consumers continue to deleverage as presented in the latest Flow Of Funds report, they are still eating away at whatever savings they have.
And from Goldman, whose tone has turned decidedly sour:
BOTTOM LINE: Tepid growth in real consumer spending in April.
1. Consumer spending increased by 0.4% mom in nominal terms, and 0.1% after adjusting for inflation. Although the April result for real spending was a bit better than anticipated--we had forecast an unchanged reading--consumer spending growth for Q2 is tracking below our expectations. Nominal personal increase increased by 0.4% mom, but real disposable income was flat. Real disposable income growth--an important consumer spending fundamental--is basically unchanged year-to-date. Note that both income and spending were revised down, as revealed in yesterday's Q1 GDP revision.
2. The overall PCE price index increased by 0.3% mom or 2.2% yoy. The core PCE price index rose by 0.18% mom or 1.0% yoy. The month-over-month growth rate was slightly below our forecasts (+0.23%).