Friday, February 4, 2011

Uncle Sam Hates Savings

Incomes continue to grow much more slowly than consumption and therefore the personal savings rate dropped once again. Personal Income increase .4%, while Personal Consumption Expenditures increased by .7%. More importantly, Real disposable income increased by a paltry 0.1% in December.

The chart below shows the decline in U.S. savings, which began in the early 1980’s, the bounce back during the recession of 2007-2009 and the quick drop back down again.

The savings rate recently peaked in May of 2009—which was where it had been for over two decades—and has now dropped to just 5.3% of disposable income. This chart provides “graphic” evidence of how the U.S. has learned nothing from the previous crisis.

The Chicago Institute for Supply Management said Monday its gauge of business activity rose to 68.8 in January from 66.8 in December. While that number is respectable, special attention should be paid to the prices paid index rose, which surged to 81.7 from 78.0.

Declining savings and rising prices. We’ve seen this movie before and the ending stinks.

Michael Pento, Senior Economist at Euro Pacific Capital is a well-established specialist in the “Austrian School” of economics. He is a regular guest on CNBC, Bloomberg, Fox Business, and other national media outlets and his market analysis can be read in most major financial publications, including the Wall Street Journal. Prior to joining Euro Pacific, Michael worked for a boutique investment advisory firm to create ETFs and UITs that were sold throughout Wall Street. Earlier in his career, he worked on the floor of the NYSE.

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