Zero Hedge — US Savings Rate Slides As Personal Incomes Below Expectations; Real Disposable Income Growth Tumbles

Charts.

Zero Hedge
US Savings Rate Slides As Personal Incomes Below Expectations; Real Disposable Income Growth Tumbles
Submitted by Tyler Durden

Savings rate collapses due to tax hikes. Thanks, Obama!

Take a look at this chart of the personal savings rate. You'll see that it shot higher after that huge dividend payout by corporations in Q4 2012. They were concerned about coming tax hikes and all the fiscal cliff stuff so they decided to "dissave." Those savings then went to people.

But then taxes were raised on Jan 1, 2013 and a big component of those tax increases included the payroll tax hike that President Obama backed.

So what happened?

All of those savings have been wiped out. Where did they go? To the government.

Thanks, Obama!

Spending surges, but incomes lag

Personal spending up sharply (0.8%) in Feb, blowing away all forecasts, however, personal income up only 0.2% and January was revised down, from an originally reported gain of 0.3% to 0.2%. The savings rate fell to the lowest level in three years.

Households are spending out of savings and taking on more debt because income gains are just not there, despite the increase in jobs. The spending is not sustainable under that arrangement. It can only last for so long—either people run out of savings or, their debt gets too high again and they cut back.

Personal Savings as a % of Disposable Income

Personal saving hits lowest level in four years

Households have been drawing down savings as incomes stagnate. Savings can only fall for a period of time before people start cutting back consumption to rebuild those savings.

In 2007, just before the economy crashed, the savings rate had fallen to 2.0%. What followed was a pullback in consumption that weakened the economy and contributed to the overall downturn.

The savings rates is now down to 3.5% (down from a peak of 8.3% in May ’08). While 3.5% is better than 2.0%, unemployment is still far higher than it was in 2007, so it’s reasonable to think that 3.5% (or thereabouts) may be the new, 2.0%. Incomes have to rise from here for this trend not to become problematic.