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Consumer Taps Out As Income Plunges By Most In 20 Years: Savings Rate Crashes To 2007 Levels

Tyler Durden's picture




 

When the US income and spending figures for December came out, the punditry couldn't contain their exuberance following the massive surge in income which as we explained was merely a function of the pulled forward wages and bonuses in December due to fears of what the Fiscal Cliff and the expiration of the payroll tax cut would do to incomes in 2013 (nothing good), as well as a surge in stock dividends to avoid a dividend tax hike resulting in yet another boost in income. The spike in personal income without an offset in spending sent the savings rate to the highest in three years.

Today it's payback time as moments ago we learned that the US consumer gave back all the December gains and then much following news that while spending did nothing, and came in as expected at 0.2%, personal income imploded by 3.6% on estimates of a modest 2.4% drop. This was the biggest drop in personal income in 20 years just as the US consumer's confidence was soaring at least according to such manipulated aggregators as UMich. What this also led to was that not only is the stock market back to 2007 levels, but so is the personal saving rate, which crashed from 6.4% to 2.4%, the lowest since November 2007, and leaving Americans with the least purchasing power just as the full impact of a government that is flirting with austerity is starting to be felt.  And just as bad was the material 4% pullback in real
disposable personal income or adjusted for inflation.

"Consumers can’t spend what they don’t have, and they don’t much much,” summarized Bloomberg economist Rich Yamarone.

Just don't tell the TV talking heads on financial comedy TV for whom the only thing that matters is how high two algos can chase the hot potato known as the Dow Jones Industrial Average. .

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Fri, 03/01/2013 - 10:03 | 3289717 AssFire
AssFire's picture

The Laffer curve suggests that, as taxes increase from low levels, tax revenue collected by the government also increases. It also shows that tax rates increasing after a certain point (we are here) would cause people not to work as hard or not at all, thereby reducing tax revenue. Eventually, if tax rates reached 100% (Obama’s dream), then all people would choose not to work because everything they earned would go to the government.

In addition to this, smart business owners will simply reduce their income to $449,000/ couple then just buy capital equipment (to replace workers) with the portion of their income left in their companies.

Fri, 03/01/2013 - 10:04 | 3289725 GetZeeGold
GetZeeGold's picture

 

 

Anyone........anyone?

Fri, 03/01/2013 - 10:07 | 3289736 CH1
CH1's picture

There are many people quietly Going Galt.

It's the smart move.

Fri, 03/01/2013 - 10:11 | 3289752 Cdad
Cdad's picture

Who is John Galt?

Seriously...and per this pesky little income thing....pfffffft....just apply a seasonal adjustment, annualize, have Cramer go full tilt Cramer on the subject, and introduce a multiplier greater than infinity for QE.  Presto....all is well.

What...is everyone suddenly chucking back crazy pills this morning, or something?

Fri, 03/01/2013 - 10:13 | 3289762 flacon
flacon's picture

Dow Jones to make new all time high today? (After a 10 minute drop in the opening minutes)? ;) 

Fri, 03/01/2013 - 10:18 | 3289792 CrimsonAvenger
CrimsonAvenger's picture

They'll at least be green by EOD. Bank on it.

Fri, 03/01/2013 - 10:24 | 3289824 Badabing
Badabing's picture

The pizza job market has a correlation with income

Ten guys order a pizza pie, the pie is cut into eight slices and two guys don’t get a slice. =20% unemployment

The minimum wage is increased the pizza pie gets cut into six slices, four guys don’t get a slice = 40% unemployment

The four guys that get stiffed want a piece of the pie, the pizza pie gets cut into ten slices everyone gets a smaller piece = a part time job for everyone.

The moral of the story, we need to make more pizza pies, besides Chinese pizza sucks.     

Fri, 03/01/2013 - 10:31 | 3289830 TruthInSunshine
TruthInSunshine's picture

A Beautiful Deleveraging in reality = indebted, broke ass debt serfs buying what they need, not want, in increasingly smaller quantities, all over the world.

Welcome to The Bernank's "Virtuous Circle" monetary policy catching up to reality, where the lag is great & the closing of the gap will be tremendous.

 

And here's to you, Mr. Ben Bernank
Jesus loves you more than you will know.
God bless you, please, Mr. Ben Bernank.
Heaven holds a place for those who pray,
Hey, hey, hey

Sitting on a sofa on a Sunday afternoon.
Going to the candidate's debate.
Laugh about it, shout about it
When you've got to choose
Every way you look at this you lose.

Where have you gone, Joe DiMaggio,
Our nation turns it's lonely eyes to you.
What's that you say, Mrs. Robinson.
Jotting Joe has left and gone away,
Hey hey hey.

 

Fri, 03/01/2013 - 10:31 | 3289850 YBNguy
YBNguy's picture

The sheeple are too busy gossiping how American Idol hit a 10-year low.

Fri, 03/01/2013 - 10:27 | 3289834 flacon
flacon's picture

Ben Bernanke walks into a pizza shop and orders a large pizza. The waiter asks "Do you want your pizza cut into six slices or eight?". Ben replies: "Better make that eight because I'm very hungry."

 

Fri, 03/01/2013 - 10:31 | 3289851 buzzsaw99
buzzsaw99's picture

Ben Bernanke orders 8 pizzas for his billionaire friends then stiffs the waiter.

Fri, 03/01/2013 - 11:02 | 3289871 TruthInSunshine
TruthInSunshine's picture

But The Bernank said that we're in a new, Virtuous Circle!

Forget pizza. He's ordering hamburgers all around & telling the proprietor he'll gladly pay him next Tuesday.

He even testified that the Fed wasn't monetizing the debt. although it holds 15% of official U.S. debt, and has purchased 45% of new issuances of U.S. debt via its Quantitative Easing (quantitative easy peasy) virtuously circular policy.

I do hope his macro monetary (and fiscal, in actuality) policy starts being efficacious soon (rather than massively destructive) given the very high costs we're all paying & the core damage seemingly being done to the economic structure.

Oh, somewhere in a favored land the sun is shining bright;
The band is playing somewhere, and somewhere hearts are light,
And somewhere men are laughing, and somewhere children shout;
But there is no joy in Amerika - mighty Bernank has struck out.

Fri, 03/01/2013 - 12:08 | 3290271 AGuy
AGuy's picture

"Forget pizza. He's ordering hamburgers all around & telling the proprietor he'll gladly pay him next Tuesday."

Nope. Bernanke is running the hamburger joint, but instead of using beef, he is using rotten donkey and horse meat with pink slime mixed in. Then he adds in a much of cheap spices to cover up the foul taste and oder. What is amazing is most of the consumers come back and ask for more, much more in fact.

 

 

Fri, 03/01/2013 - 10:38 | 3289872 FrankDrakman
FrankDrakman's picture

Yogi's version was funnier.

Fri, 03/01/2013 - 12:07 | 3290258 smlbizman
smlbizman's picture

badabing...we need to make more pies i agree. but it is what happens to those pies after they are made . they would be taken to one gigantic beyond belief, polluting belching pig, that wouuld eat all the pies itself.  than once a month, it would  projectile vomit  the left over pie  remains (if any) from its holding tank, thru stacks pointed in varying directions.....making sure that 99% of us get covered in shit...

Fri, 03/01/2013 - 10:33 | 3289828 Joe Davola
Joe Davola's picture

I don't know, wouldn't big red numbers fit the sequester narrative better.

/edit - time to start alphabetic naming of the latest federal budget crisis as they've done for winter storms, they seem to arrive with the same frequency

Fri, 03/01/2013 - 10:14 | 3289766 GetZeeGold
GetZeeGold's picture

 

 

Who is John Galt?

 

I think he's related to Ferris Bueller......not sure.....I can never find either one of them around.

Fri, 03/01/2013 - 10:20 | 3289801 Ralph Spoilsport
Ralph Spoilsport's picture

Somebody is junking any mention of John Galt.

Fri, 03/01/2013 - 10:21 | 3289808 GetZeeGold
GetZeeGold's picture

 

 

Just some kid on his dad's computer.

Fri, 03/01/2013 - 10:35 | 3289854 CH1
CH1's picture

Somebody is junking any mention of John Galt.

ZH has its own coterie of paid trolls, plus reinforcements who are called in from time to time, such as when there's an article on Bitcoin, or some "green" subject.

Fri, 03/01/2013 - 10:53 | 3289941 Cursive
Cursive's picture

@CH1

I was thinking the same thing.  Everytime there is a bitcoin article, some people who act as though BTC is the next evolution of money downvote and attack anyone who mentions the drawbacks of BTC.  These BTC zealots remind me of Amway MLM schemers.

Fri, 03/01/2013 - 11:55 | 3290202 Boondocker
Boondocker's picture

it has been suggested that without possession (stacking) that it isn't really yours.  perhaps they think that applies to bitcoins as well?

Fri, 03/01/2013 - 11:56 | 3290208 Jayda1850
Jayda1850's picture

+1 Been following the comments on the bitcoin posts, wish I could give you more. Still up in the air about the whole concept, but your comment is spot on.

Fri, 03/01/2013 - 12:11 | 3290293 AGuy
AGuy's picture

"Everytime there is a bitcoin article, some people who act as though BTC is the next evolution of money downvote and attack anyone who mentions the drawbacks of BTC. These BTC zealots remind me of Amway MLM schemers."

This is also true of FRNs! Currencies are nearly on par with religion as most people worship currencies. In the case of fait currencies, their followers are worshiping false deities.

 

Fri, 03/01/2013 - 15:02 | 3291146 Midas
Midas's picture

I'm a bitcoin miner.  I sell most of them and hang on to the rest.  I like anonymity and BTC is the only way I know to send money anonymously online to anywhere in the world.  BTC may have its drawbacks, but that is one hell of an upside.  I never downvote or get into arguments with the detractors because I DON'T GIVE A SHIT.  If it doesn't work for you, continue to live in the framework TPTB have approved.

Cheers.

Fri, 03/01/2013 - 11:26 | 3290084 meltdown
meltdown's picture

how does xeno frog get compensated?

Fri, 03/01/2013 - 10:46 | 3289884 CheapBastard
CheapBastard's picture

"Can't spend what you don't have...." is False.

 

You can still get into a zero dowon house....a zero down car....and a zero down college...all with loans/mortgages or combo of them.  This is just one moar reason I see a long slow painful road for the foreseeable future.

Fri, 03/01/2013 - 10:19 | 3289796 CH1
CH1's picture

Who is John Galt?

YOU are, if you have the stones to ACT, rather than just talk.

Fri, 03/01/2013 - 10:24 | 3289819 azzhatter
azzhatter's picture

I went from $345K in 2009 to $55k for 2012. I'm happy to pay less taxes. Fuck You Obama

Fri, 03/01/2013 - 10:47 | 3289857 Turin Turambar
Turin Turambar's picture

I agree.  I've closed both of my real estate offices, and scaled back my mortgage business.  I now have zero employees.  It's so nice to not have the worry and responsibility that I felt for providing employees an environment and opportunity to earn a living.  It's just not worth it.  I even deactivated my real estate license after 16 years in the business, although I did keep it active long enough to help one of my former agents set up her own real estate company.  No more fees, licenses, or compliance busy work.  Good riddance!  Moving forward, I'll continue to help previous clients, friends and family with mortgage needs, but for the most part, I'm just going to manage my rental properties.  Any driving ambition that I once had to grow my businesses and excel has been pretty much sucked out of me.  What's the point?  After all, I didn't build it.  The government views me as a milk cow.  Well, this milk cow has voluntarily moved out to pasture, and life is a whole lot more enjoyable now!

 

 

Fri, 03/01/2013 - 10:48 | 3289914 NoDebt
NoDebt's picture

I resemble that remark!

Yeah, I've been doing the "small" thing for a few years now, too (different industry than you, same idea).  I don't want the attachments, compliance BS and liability exposures.  I'd rather be a single-engine Cessna in this environment than a 747.

And, of course, if your expenses are effectively zero it doesn't take a huge income to live comfortably.  I don't even have to travel far any more- except for vacations, my whole life happens within a 12 mile radius of my house (having recently resolved never to travel to Philly or south Jersey again).  I'd like to get that down to 6 miles.

 

Fri, 03/01/2013 - 11:00 | 3289960 Turin Turambar
Turin Turambar's picture

Agree.  One of the things I always tried to encourage my clients about was debt elimination.  Borrower is slave to the lender, as  Proverbs teaches, and it's true.  Pay off all debt, including your house.  If you don't have the cash to pay for something that means you can't afford it.  With no debt, most people would be shocked at how much easier it is to live and even save on their current income.  The government is not there to take care of you, only to take FROM you.  Prioritize people.  Things aren't going to get any better any time soon.

 

Fri, 03/01/2013 - 11:13 | 3290034 toady
toady's picture

Ageeed, but the 2-3k I was saving every month is shrinking. Some months I'm only saving 5 hundred. This inflation, especially these gas prices, will eat you alive if you're saving less than 50k a year.

Fri, 03/01/2013 - 12:23 | 3290372 AGuy
AGuy's picture

Also depends on how much you already saved and how high your income is. For instance if inflation is running at 10% per year and you contribute less than 10% per year of your total savings your losing money by not spending it. For instance say you have $100K in savings. Inflation reduces your effective savings to 90%. If you only put in $8K for the year. You're losing money.

FWIW: On rental properties, I am not sure this is a good long term strategy. Incomes are not keeping up with inflation and it will difficult to raise raises. At the same time, local and state gov'ts will put on the squeeze with higher taxes and more regulation, and maintaince costs will rise (at least for material costs). I have doubts that rental properties will be profitable within ten years or less. I think the real unemployement rate (excluding the BLS BS data) will rise to 25% or higher as even the service sector gets squeezed.

 

Fri, 03/01/2013 - 17:26 | 3291070 Turin Turambar
Turin Turambar's picture

I agree with you to an extent on the rental properties.  Without getting too specific, I'm not into sfr rentals.  I prefer mulit-family > 8 units and commercial light industrial.  I'm always open to offers and when a good enough one comes along, I take it.  Also, I'd recommend getting some money or assets outside the country if you can.  Learn another language.  Spanish is a good one, and diversify - assets, life, interests.  The more you have been exposed to, the more things you will have to consider as well as options to choose from when needed.

Best of luck to everyone.

Fri, 03/01/2013 - 11:06 | 3290007 onewayticket2
onewayticket2's picture

Did the same. 

We altered our business model and strategy in 2009....got rid of employees starting then....outsourced to specialists on a variable basis.  Got rid of our real estate and all that expense (which remains vacant today....zero buyers!).  automated what we could... We are down to zero employees - all contractors, virtual offices, cloud apps, variable expenses mostly.   as protected as we can be.  Revenue is way down, but not nearly as much as expense :). 

competitors who didnt act - or who are scrambing to act now - have either gone belly up or are struggling with their high fixed expenses and employee liabilities....Sad that it came to this....for everyone. 

 

 

Fri, 03/01/2013 - 13:06 | 3290051 Professor Fate
Professor Fate's picture

And the hits just keep on comin'.  I've scaled my small business finance company down from 4 well-paid employees to one and she is now an independent contractor.  I'm now converting from actually financing small businesses to brokering for other finance companies for commission and building a sub-broker network.  Overhead is down from $13,000 a month to just under $7,000.  Headed as fast as I can to $2,000 or less.  Storm is coming!  Better git' your ammo.

Fate the Magnificent

"Push the Button, Max" 

Fri, 03/01/2013 - 12:32 | 3290431 Doctor Faustus
Doctor Faustus's picture

Did the same with my manufacturing business, but did it 15 years ago. Went from 22 employees to 6 by outsourcing many functions to local independent businesses and consultants. Today, still manufacturing, but have accepted a much smaller market-share in exchange for less aggravation, more satisfaction and a lesser tax burden. 

 

Fri, 03/01/2013 - 14:07 | 3290954 FreeNewEnergy
FreeNewEnergy's picture

Same here. Started a business 15 years ago with the intention of never hiring anybody and never have. I work from home, own one rental property (believe me, one set of deadbeat tenants is more than enough) and have near-zero debt (will be zero within six months). When I started I had NADA, except my wits. Over 15 years, I've acquired two homes, have a substantial inventory and a stable business which operates itself for the most part. I am more a caretaker than anything else.

Working hard is for anyone but me. Don't see any reason to make a ton of money, since the govt. will just tax the crap out of it. Have a garden, good food, couple of guns and complete sanity. Plus, I get to work in my underwear or whatever I feel like. Not shaving every day is pure joy.

There's a lot to be said about living the simple life on your own terms which the sheeple - teachers, police and our blessed "first responders" (I'm so sick of making every fucking miscreant low-wage slave a hero) - will never understand.

Oh, yeah, Fuck you Boehner, Obama, Bernanke, McConnell, Scalia and any of the other elected or appointed people who think they run our lives I may have missed.

Fri, 03/01/2013 - 10:10 | 3289748 Ghordius
Ghordius's picture


The Laffer curve also suggests that, as taxes decrease from high levels, tax revenue collected by the government also increases. It also shows that tax rates decreasing after a certain point (you were there) would cause people to work as hard as never before, thereby increasing tax revenue. Eventually, if tax rates reached 0% (I'll leave it to you to say who's dream it is), then all people would choose not to work because everything they need would come from the government.

Or something like that

Fri, 03/01/2013 - 10:12 | 3289759 Terminus C
Terminus C's picture

?

ICWUTUDIDTHR

 

Fri, 03/01/2013 - 10:15 | 3289776 Ghordius
Ghordius's picture

don't know what you mean, what I know is that the Laffer curve was a big thing because any lobbyist could explain it in five minutes to any senator even after a heavy lunch

Fri, 03/01/2013 - 10:44 | 3289900 Joe Davola
Joe Davola's picture

Guess Ted Kennedy and Chris Dodd must have been under the table for that part of the lunch discussion.

Fri, 03/01/2013 - 12:11 | 3290289 TBT or not TBT
TBT or not TBT's picture

Easy to explain because it is true.

Fri, 03/01/2013 - 13:22 | 3290787 Ghordius
Ghordius's picture

then explain Sweden. according to the Laffer Curve they should be more broke than Zimbabwe

Fri, 03/01/2013 - 10:11 | 3289754 Ruffcut
Ruffcut's picture

"We're BROKE, bitchezz!"

So missing out on all that bank interest. People are not saving in accounts if they have any money, they are buying. Buying physical metals, weapons and supplies.

Better ready than deady.

Fri, 03/01/2013 - 10:31 | 3289847 gaoptimize
gaoptimize's picture

I am an example of this.  What is the point of saving only to have purchasing power/ability decimated by inflation and shortages or even bans.  We have a long list of planned purchases we are pushing through that ends with some off-grid solar which will be purchased and deployed ALAP (The satellites are no doubt making a list of everyone with solar). 

Fri, 03/01/2013 - 11:12 | 3290027 onewayticket2
onewayticket2's picture

that could be the point that's not being discussed.  Obama and his sabre rattling is its own "stimulus".....as people scramble to protect themselves from his policies...

 

i've spent thousands recently on physical.  from supplies to protection and my savings rate has plummetted as i took a month or so to load up.  i think i'm not alone.

 

 

Fri, 03/01/2013 - 10:24 | 3289823 Rip van Wrinkle
Rip van Wrinkle's picture

And who are these 'smart' business people going to sell their products to? Greeks? Foxconn workers? The Spanish? Or the aveage US 'consumer' who is braasic?

 

'Brassic' = Brassic Lint....skint.....potless......broke.

Fri, 03/01/2013 - 10:29 | 3289844 bidaskspread
bidaskspread's picture

I'd pay more in taxes if my purchasing power increased more than the rate hike. A gallon of gasoline under a dollar, imagine.

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