Monday, May 3, 2010

Not Sustainable

The WSJ details:

U.S. consumer spending rose twice as fast as income in March as saving dropped to its lowest level in 18 months and a closely watched indicator of inflation remained stable.

Personal income rose 0.3% in March as a weak labor market continued to keep a lid on wage growth, the Commerce Department said Monday.

Meanwhile, consumer spending -- which accounts for 70% of demand in the U.S. economy -- increased by 0.6% from the prior month, likely lifted by government efforts to spur economic growth.

With income growth sluggish, U.S. consumers slowed their pace of saving in March. Americans in March saved $303.9 billion as the national saving rate slid to 2.7% from 3.0% the previous month. The saving rate is at its lowest level since September 2008.
Below is a chart of the cumulative change in the largest sub-component of personal income, compensation, in real terms over the past three years.

And a chart of the same data, but in year over year terms since 1990.

The above disconnect occurred for a number of reasons (less savings, transfer payments [i.e. unemployment], return on financial assets, borrowing [commercial bank credit is down due to defaults, but net borrowing is actually up], and missed mortgage payments [some evidence that people are spending what "should be" their mortgage]).

None of which are sustainable.

As a result, look for consumption to slow unless wages and actual income levels begin to rise.

Source: BEA


  1. total gross saving as %GDP :~~

    Euro Zone(19.8%)..US(12.4%)..Jap(28%)

    Household's gross savings as %their disposable incomes :~~

    Euro Zone(14%)..US(4.5%)..Jap(11%)

  2. So how many times do you have to whack consumers in the head before they take the hint?

  3. this all boils down to "the will" vs. "the wallet".

    unless something changes drastically, in the U.S. there will always be the will to keep spending.

    at some point, it will be determined by the wallet of the consumer and/or the wallet of lenders.

  4. it's just seasonal fluctuation not real consumption increasing !!

    what can they consume more ?
    how can they consume more by their heavy burden borrowings reserves !!

    of course all kinds of statistics are open to any official manipulations ..always !!

  5. gdr ; you are very right ,
    proof is last domestic vehicle indicator..

  6. Jake,

    You may be thinking of Felix Salmon's March article when you say, "credit is down due to defaults, but net borrowing is actually up". But the data he used was wrong. The charge-off rate for bank lending was applied to non-bank categories. See

    Jim Fickett

  7. Jim-

    Thanks for the info.

    Looking at your post, it seems like consumer loans adjusted for write-offs are up year over year, while consumer loans outstanding are down.

    Thus, it seems that net lending is up, but overall credit outstanding is down to to write-downs (rather than defaults - though possible also because of defaults).

    In other words, if one were to assume that write-downs = default, then my wording was correct, but it is not certain...

    Is this the right way to think about it?


  8. gdr ;again your are very right,
    proof is last ICSC data..

  9. Jake,

    Sorry I was unclear. Your statements are true for commercial bank lending, but not for consumer lending overall. Only about a third of consumer loans are from commercial banks.