Savings Rate

While there was no surprise in this morning's release of the PCE data, which came at 0.2%, on top of expectations, and unchanged from January's revised 0.2%, it was the action at the consumer level that was notable, as Spending increased from a revised 0.3% to 0.7%, on expectations of 0.5%, while personal income declined notably from a revised 1.2% to 0.3%, below expectations, as US Consumer had to dip into their savings in the month of February. On the Personal Savings Rate: "Personal saving -- DPI less personal outlays -- was $676.7 billion in February, compared with $710.5 billion in January.  Personal saving as a percentage of disposable personal income was 5.8 percent in February, compared with 6.1 percent in January." As the chart shows, personal savings continue to trend in the 5-6% range, indicating that consumers are still uncertain whether to splurge or continue deleveraging.

Today's economic docket includes Personal Income and Spending (which is expected to show a jump in inflation) and the Savings Rate, core PCE, Pending Sales, the Dallas Fed, and a whole lot of dovish Fed speeches. These will be analyzed under a fine toothed comb to see if any of the more dovish members are starting to become as hawkish as their brethren from last week. In the meantime, Frost-Sack will monetize another $5.5-7.5 billion in 5 year debt.

According to the BEA, personal income in January jumped by 1%, on expectations of 0.4%, while Expenditures increased a modest 0.2%, below expectations of 0.4%. The reason - government largesse finally hitting the consumer bottom line: "the January change in disposable personal income (DPI) was affected by two large special factors. Reduced employee contributions for government social insurance, which reflected provisions of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, boosted personal income in January by reducing the employee social security contribution rates (employee contributions for government social insurance are a subtraction in the calculation of personal income).  The January change in DPI was affected by the expiration of the Making Work Pay provisions of the American Recovery and Reinvestment Act of 2009, which boosted personal current taxes and reduced DPI (personal current taxes are a subtraction in the calculation of DPI).  Excluding these two special factors, which are discussed more fully below, DPI increased $11.4 billion, or 0.1 percent, in January, following an increase of $48.5 billion, or 0.4 percent, in December." As a result of this contraction in spending and boost in government largesse, the Savings Rate jumped to 6 month high of 5.8%: the highest since August 2010.

Of today's Personal Income and spending numbers, the most relevant one was the savings rate. Income came unchanged at 0.4%, in line with expectations (previous revised to 0.4%), Spending was higher than expected, at 0.7% compared to 0.5% consensus (an increase of 0.3% from the revised 0.3% November point), meaning that the savings rate as a percentage of disposable income was 5.3%: the lowest since March 2010. The saving inflection point appears to have been 6.3% hit in June 2010. Is it all downhill from here?

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.

The BEA has released the August Personal Spending, Income and Savings data: in summary spending rose 0.4% on expectations of 0.3%, and 0.2% previously, income increased 0.5% vs a consensus of 0.3%, and 0.2% previously again. The reason for the biggest advance in income this year, "the resumption of extended and emergency unemployment benefits." It appears, the only way Americans can see their incomes now grow is when the goverment loosens the socialism spigot. Both the PCE core and deflator came as expected, at 0.1% and 1.5%, respectively. Finally, due to the relatively bigger growth in Income, the savings rate increased slightly from a previously revised 5.7% (5.9% before), to 5.8%. The Krugmanites out there will vomit all over this number, as the last thing, they will say, the economy needs is a consumer who is saving more just as the government's fiscal stimulus hands are tied, and the effects of the existing stimulus are now non-existent.

American consumers do not want the Age of Mammon to end. They will need to be dragged kicking and screaming into the Age of Austerity. Consumer expenditures peaked at $10.2 trillion in the 3rd Quarter of 2008. They reduced spending for two quarters, but when Big Daddy Government handed them billions and told them to spend it on cars, appliances, and homes, they dutifully obeyed. Today, consumer expenditures stand at an all-time high of $10.3 trillion, still accounting for 70.5% of GDP. There really has been no hint of austerity by Americans. It is a false storyline. The major reductions in consumption still loom in the future.

July US Personal Income comes in at 0.2%, on expectations of 0.3%, and a previous print of 0.0%. Yet making less money does not prevent consumer from purchasing (i.e., not paying their mortgages), coming in at 0.4%, higher than expectations of 0.3% (previous 0.0% as well). And it appears consumers may have jumped the shark on the economic "improvement" just as we double dip, with the savings rate declining to 5.9%, compared from a revised 6.2% in the prior month (6.4% initially). Other news: US PCE Core M/M at 0.1%, inline with expectations, the same as the PCE Deflator, which came at 1.5%.

While economists were looking for Personal Income to come at a 0.2% growth in June, the actual number was an unchanged print from May (and a drop from the 0.3% revised rise in May). One wonders just where the Chairman gets the temerity to say that US consumers will spend more with time, despite the just confirmed (for the nth time) contraction in actual incomes, not to mention that the second drop in Payrolls in as many months will once again confirm the double dip.Further confirming the Goblin-in-Chief's delusion was that personal expenditures also printed below expectations, coming in at 0.0%, on expectations of 0.1%, down from a revised 0.1%. In other words the savings rate in June was unchanged. Yes, that means consumer did not spend more than in May, and goes against the whole "economic expansion" propaganda. And putting the last nail in the spending coffin, was the personal savings rate, which at a revised 6.4% came at the highest reading since June 2009. The US consumer is done (there are only so many iPads a bankrupt mortgage holder can buy), and no matter how fast the Dow hits 36,000, nothing will change this.

The BEA's May Personal Income and Spending data is out - as expected, with gizmos like the iPad out there, Americans once again outspent themselves: May Income came in at 0.4%, below expectations of 0.5%, flat with a revised April reading of 0.5%; Spending on the other hand was greater than expectations of 0.1%, coming in at 0.2%, compared to a previous reading of 0.0%. Yet despite the excess spending, the Personal Savings rate climbed to 4.0% - an increase from last month's revised 3.8%, and the highest since September 2009.

Even with consumers defaulting "strategically" on their mortgages left and right (with planned defaults accounting for 31% of foreclosures in Q1), and thus not having to incur almost any housing-related expenses (courtesy of the Treserve for making it all too obvious that nobody is expected to pay anything they owe ever again), the savings rate still declined by 10% in March, from over 3% to 2.7% of Disposable Income, as Personal Spending (+0.6%) outstripped Personal Incomes (+0.3%), and of this 0.3% increase, 70% was made up of a pick up in transfer payments! At this point we are fairly certain that US consumers are finally mimicking the administration and the financial sector in not caring if they ever get to pay another bill. That, and the government is directly funding the broader population's latest Apple product fix. It sure isn't due to increasing wages, for the simple reason that wages have not increased in years. And whereas in other nations the savings rate is materially higher due to the lack of such "we'll save it for you" entities as Social Security and Medicare, we now know that SSN is virtually bankrupt as we speak, with "cash out" now greater than "cash in." Yet instead of saving for their retirement, Americans are buying, buying, buying. One would think that based on this data real unemployment was lower than 16.9%. It isn't. The government's and the financial sector's methadone clinic has now moved to the suburbs. That this is yet another stimulus high that will ultimately fizzle, because that's what all one-time stimulus programs do by definition: they end, is clear. It is also now clear that the government has no idea what to do when the trickle down benefits from the drunken spending orgy do in fact end.

The BEA released its February Personal Income and Outlays data: continuing the trend of PI outpacing or same as Expenditures, the sequential change in February Personal Income came in at 0.0%, lower than the 0.1% consensus. On the other side, expenditures increased by 0.3%. Previous revisions indicated that January PI has been an increase of 0.3%, while PCE was greater by 0.4%. Most troubling, this implies that the Personal Savings Rate declined by 0.3% from 3.4% to 3.1%, the lowest this metric has been in over a year. Keep in mind, the primary reason why Goldman sees that 10 Year at 3.25% (as opposed to Morgan Stanley's 5.5% call) is because of the "increased" savings by US consumers. Now that these same consumers have decided to put their money in iMaxiPad pre-orders, maybe Goldman will consider reevaluating their Treasury forecast.

Largest since 1995. Set to keep growing.

The rapid increase in consumer savings has become a major topic of contention, and could easily be the biggest headwind facing Obama's stimulus package, and the threat to reducing the near $2 trillion upcoming budget deficit.

The rapid increase in consumer savings has become a major topic of contention, and could easily be the biggest headwind facing Obama's stimulus package, and the threat to reducing the near $2 trillion upcoming budget deficit.