Thursday, 27 June 2013

U.S. Consumers Continue Their Spending Spree, Personal Savings Drops 15.3 %

Did anybody blame the U.S. consumer for not spending enough and saving too much? Anyone who did will appreciate the personal income and outlays numbers for May released today (percentage change compared to same month last year):
  • Consumer spending up 2.9 %
  • Disposable personal income up 2.2 % (real disposable income up 1.1 %)
  • Personal savings down 15.3 %
  • Personal savings rate down 17.9 %

The low savings rate is a risk to the U.S. economy as we have pointed out numerous times in the past given the fact that consumer spending makes up about 70 % of GDP (e.g. see here) and given the low increase in disposable income. 

The low personal savings also represents a risk to the U.S. stock market as the consumers cannot continue indefinitely to deplete savings. As an indication of this risk, the Wilshire 5000 Total Market Cap Index to 10-year average personal savings ratio is now among the highest ever recorded. Based on what happened when this ratio hit new highs in 2000/2001 and 2007/2008, the current high level of this ratio is not a good sign for the long-term stock market investor. 

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