Savings Rate Declines By 10% As Spending Once Again Outstrips Income, Which In Turn Is 70% Transfer Payments

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.

Some observations from Goldman on PE and PI:

1. Consumer spending posted a large increase in March - 0.6% in nominal terms, 0.5% in real terms - as the return of more normal weather patterns and the early timing of Easter both helped. As a result, the level of spending in March was almost ½% above its first-quarter average. However, we expect to see some payback for the weather and Easter effects in the data for April; today's vehicle sales and Thursday's chain store reports will help determine whether that occurred.

2. Income was better than we expected, as setbacks in dividends were smaller and interest income edged up. Compensation figures were also slightly better, and transfer payments remained quite strong, accounting for almost 70% of the net increase in personal income. Despite the gain, the personal saving rate continued to move down in March, to 2.7% of disposable income.

3. The core index of prices for personal consumption expenditure (core PCE index) rose a bit less than we anticipated, confirming the disinflationary trend in these data. Over the past year, this index has risen only 1.3%.