US GDP Turbocharged After Record Saving Rate Revision: Why That Could Be A Problem

Last week, the US Bureau Economic Analysis unleashed some statistical goalseek magic that would make Beijing thoroughly fabricated economic "data" blush for days: as part of the comprehensive GDP revision carried out every five years by the Commerce Department’s BEA, US economic history was rewritten and in a shocking development, the annual saving rate was revised higher by 1.6% on average since 2010, with the 2017 US savings rate doubling overnight, from 3.4% to 6.7%.

Putting these revisions into context, the last comprehensive revision conducted in July 2015 only produced an upward revision of 0.3% per year. In fact, this revision to the saving rate over the prior 6 months is the largest on record, according to real-time data available from the St. Louis Fed since 1997.

Major revisions to national income (and consequently the saving rate) came from 3 sources of income: proprietors', dividend and interest income, as well as a tiny increase in employee compensation.

As BofA notes, the BEA incorporated the tabulations of sole proprietorship and partnership tax returns for 2016 which included new research by the IRS showing significant underreporting of income by nonfarm proprietors over time, causing a sizeable upward revision for proprietors' income starting in 2010. It wasn't immediately clear if this also meant a sizeable upward revision in tax audits by the IRS.

In addition, newly available IRS income data boosted dividend income in 2016 and 2017 by roughly $113bn and $143bn, respectively, shifting savings from corporations to households while the entire interest income series was revised higher due to changes in the way BEA calculates state and local employers' contribution to pension plans. Last, the saving rate got an additional boost in 2017 due to the integration of revised employment and wage data from QCEW which added $98bn to wages and salaries.

Unfortunately none of these statistical revisions actually mean anything, because both before and after the BEA revision, some 50% of Americans still don't have a single dollar in savings, and the only ones affected are those in the top percentiles of US society which means that - you guessed it - the rich get richer again.

And yet, at the statistical level, which is the only one that matters for the Fed, the latest numbers suggest households have been thrifty with their money during the recovery, and with one flick of an excel switch, the secular decline in the US personal savings rate was halted.

There are two implications from this:

  • Moving forward the higher saving rate should be a boon for the consumer BofA's economists wrote on Friday: in good times it should provide room for the consumer to spend without breaking the bank or levering up and in bad times, it should provide a buffer for the consumer against a negative income or employment shock, helping to extend the business cycle. Even so, BofA did not revise its consumer spending forecast higher significantly post revisions as the bank understands the money was never actually saved, but merely served as a plug in some big picture equation.
  • The other implication is that if the Fed was concerned about hitting an economic ceiling sometime in 2019, as a result of the roughly $500BN in incremental savings "discovered", the rate hike cycle could be far more aggressive than the market thinks.

And while BofA kept its outlook unchanged, one bank did revise its forecast as a result of the dramatic paper increase in personal savings.

In a Saturday note, Goldman chief economist Jan Hatzius quantified the implications of the higher saving rate for the consumer outlook and wrote that "taken at face value, our model implies that a declining saving rate could deliver a boost of as much as 0.8% to annualized real PCE growth over the next two years." Even under more conservative assumptions—which Hatzius writes may be warranted given the uncertainty around saving data, Goldman "now expects real consumption growth to slow more gradually than before, from 2.7% over the past year to 2.4% over the next year. "

What does this mean for GDP? Simple: it is revised sharply higher, with Goldman throwing in the towel on its warning of a sharp slowdown in economic growth in 2019 and 2020, and instead now expecting substantially higher growth as we continue drifting ever deeper into the second longest economist cycle in history.

As a result of the consumption and federal spending upgrades, we nudge up our GDP growth forecast by 0.25pp for 2018H2-2019 and lower our unemployment rate path. We still expect 3.3% growth in Q3, but now look for 3.0% in Q4 (vs. 2.5% previously), and 2.0% in 2019 on a Q4/Q4 basis (vs. 1.75%).

We now expect the unemployment rate to decline to 3.5% by end-2018, and to bottom at 3.0% in 2020. We maintain our end-2019 forecast for core PCE inflation of 2.3%.

But while Goldman's forecasting track record is just as abysmal as, well, any other economist's, the key implication is what this savings revision means for the Fed's rate hike timetable: here's Goldman's take.

We continue to expect the Fed to hike once-per-quarter until the policy rate reaches 3¼-3½% by end-2019. While the Fed is very focused on containing economic overheating, our standing forecast of quarterly rate hikes already incorporates a significant labor market overshoot. This quarterly pace seems to be largely “locked in” barring a bigger acceleration in core PCE inflation beyond 2.5%, which is a risk but not our baseline forecast. 

Our higher growth and lower unemployment projections therefore moderately reinforce the upside risks to our Fed call.

In other words, the risk to more, and faster, rate hikes is now on the table as a result of a revision in the simple calculation of how much money Americans managed to save, when in reality the vast majority of Americans have just gotten poorer no matter what the BEA's excel model says, even as "the 10%" have never been richer.

That said, it will be up to Jay Powell to decide if for the first time in 10 years, he will do the right thing, and let the market drop as a result of the Fed's tightening cycle, wiping out a substantial portion of the 10%'s net worth, when the next recession hits, or if the Fed will immediately proceed with QE4.

For now, however, the only chart worth watching is this: at what interest rate will the Fed finally cause the market to crash.



lock-stick Free This Sun, 08/05/2018 - 21:16 Permalink


•• Free This  (same WHACK JOB -- formerly known as "Mr Hankey" -- also banned)

•• ssk81646  (same WHACK JOB "I suck DICK on the Internet for Land Rovers!")

•• More Sun (it's the JOOS!! -- whack job extraordinaire)

•• Adolfsteinbergovich  (another imaginary friend)

ONE DEEPLY DISTURBED INDIVIDUAL, alone in his leaky moldy single wide, playing with little action figures and his own microdick, answering his own posts.  GOOD TIMES!!! 

ONE whackjob obsessed SPAMMER -- with numerous log-ons!!!

•• monad  (A new "QAnon Action Figure" on the kitchen counter)

•• Free This  (same WHACK JOB -- used to be "Mr Hankey" -- also banned)

•• kr86096 (I suck dick on the Internet and I got a Land Rover)

•• sanctificado  (DON'T CLICK THE LINKS!!! --  Biblicism SPAMMER -- banned as powow/Wadolt/ravolla/lloll/pier/etc.)

•• Adolfsteinbergovich  (another imaginary friend)

•• Leakanthrophy  ("celebrity-leaks" porn posting whackjob)

•• Annanuki  (another imaginary friend)

•• Jumanji1959 (another imaginary friend)

•• Cryptopithicus Homme  (another "imaginary friend")

•• PrivetHedge (another imaginary friend)


spamming ZH for seven years --- dozens and dozens of banned log-ons


Write to the Tylers ::


ONE DEEPLY DISTURBED INDIVIDUAL, alone in his leaky moldy single wide, playing with little action figures and his own microdick, answering his own posts.  GOOD TIMES!!! 


In reply to by Free This

johngaltfla philipat Sun, 08/05/2018 - 21:58 Permalink

If you are short this market, there is short term gain but long term gain if I am correct. So enjoy. But in reality what I have witnessed in the last 3 months is unreal. Seriously off the charts beyond 2007 unreal. Hedge accordingly.

Why the Doomers are Wrong Again or Let the Good Times Roll…

In reply to by philipat

ElTerco tmosley Sun, 08/05/2018 - 20:45 Permalink

Those loans being taken out with your savings are mostly for leverage related spending. If that were not the case, we would not have a $21 trillion deficit (and that is just the debt held by the public). No gibberish involved, just sound accounting.

As of Q1 2014, the total US debt was 852% of GDP. Not quite 10x, but then again, I can't find the current figure.

Total Debt to Equity for United States, also known as "corporate leverge" as defined by FRED is 55:1 ( to see definition ), in case you wondered where your savings were really being put to work. Hope you enjoy the fake gains in the market.

In reply to by tmosley

Free This ElTerco Sun, 08/05/2018 - 21:13 Permalink

That may well be true, kind sir! However, those loans provide growth, there is a flip side. You are counting future debt in that % you cite though.

The debt is a problem to be sure, no getting around that $170 trillion statutory+private+unfunded liabilities. That is not gonna be paid off!

Deflation, inflation, then stagflation is somewhere on the horizon. After that default or WWIII, roll the dice! Lucky number 7 wins!

I will give you a pip up for your post!

In reply to by ElTerco

philipat ElTerco Sun, 08/05/2018 - 21:51 Permalink

If you care to read the article it specifically states that the source of the addition savings by consumers was the payment of dividends, moving income from Corporations to consumers. So, of course, stock prices are relevant in that higher stock prices influence the dividends declared by Corps to maintain the required dividend payout as a percentage.

In reply to by ElTerco

ElTerco philipat Sun, 08/05/2018 - 22:00 Permalink

Understood. The savings are real.

And any consumer that holds stock and receives dividends is highly likely to plow that money right back into the stock market.

What about those consumers that don't own stocks and aren't proprietors? The ones that actually work and produce goods? Are they experiencing growth? Last I heard, their inflation adjusted wages were declining, and the current low unemployment figures are dubious since the number of people unaccounted for in the labor force is growing (e.g. a lot of prime working age men).

In reply to by philipat

Iskiab ElTerco Mon, 08/06/2018 - 00:12 Permalink

In economic theory it doesn’t matter who’s doing the saving, just that that people are saving.  If all the savings were by 1 person or a billion it would not matter.  It’s one of the failings of economics, and the reasons why there’s very little research into it is because you can’t really research it without becoming political.

A funny thing happened in Russia.  After Russia wanted to modernize and become capitalist they asked the USA for help, and a bunch of American economists were tasked with the job.  One of the first things they did was a fire sale of all the state oil assets because, as per economics (or I should say political economics) things are always done best by the private sector.  The end result being they were mostly purchased by the Russian mafia, who became the Russian oligarchs.  This further entrenched corruption in Russia and created a lot of economic problems.

Back to the political failings of economics, classical theory was fairly primitive in what it could research.  Even in modern times there’s some research stating those that are rich save and those that are poor spend if they have extra money, and some that for a capitalist system to function you have to have a certain percent be poor and rich, but that’s it.  Corporations hire those who’s views they like, leading to universities like Chicago becoming prestigious over time.  It doesn’t pay to go looking into inconvenient questions that your employer doesn’t like, and even colleges have more than half their research funding from corporate sponsors.  With the peer review system for publishing, special interests nudging economics in one direction is all it’s taken for the entire discipline to fail.

In reply to by ElTerco

H H Henry P P … Sun, 08/05/2018 - 20:03 Permalink

This is what Mike Maloney has been saying and has forecasted deflation before mass inflation.  People are becoming worried and saving instead of spending.  The Federal Reserve will soon be printing mass dollars to try to entice spending, but the people will keep saving until there in a comfort zone.  Then you get hyperinflation due to all those printed dollars getting absorbed all at once from the savers becoming spenders.  Happened in Weimar.  That dollar is gonna get creamed the second they announce QE4 and it will destroy all dollar savers.

Buy gold.

xephos Sun, 08/05/2018 - 20:10 Permalink

The people of America are suffering.. Please... I am begging the rulemakers at the top.... Give more money back to the people.... Stop artificially boosting housing and asset prices... Let the market fall, let wages rise, criminalize stock buybacks, lower immigration, let labor organize.. We will ALL benefit if you allow a little more money into the middle class of America...

3-fingered_chemist gatorengineer Mon, 08/06/2018 - 00:28 Permalink

Doubling of the standard deduction basically makes the mortgage interest deduction obsolete for the middle class. Yes, the SALT deduction limitation hurts the super rich that are paying tens of thousands of dollars in interest per year, but if you can afford that in the first place, you don't need the additional tax break. I believe that's what the Democrats have classified as paying their fair share. Nonetheless, what they didn't mention was that they didn't want their super rich to have to pay their fair share. Go figure.

In reply to by gatorengineer