Improved savings rate? Not exactly.

Mark Warywoda of Addenda-Capital.com up in Canada offers up some thoughts on why we should not read too much into the recent improvement in Savings Rates:

“So far, all we have had is a two-quarter bump up in personal savings rates — that is trivial related to the outstanding debt burden. The debt-to-income ratios have barely budged, given that income had fallen at the same time that spending had fallen.

How is it was possible that debt-to-income ratios hadn’t improved much when the savings rate had gone up to 5%. The short answer is it comes down to the simple equation: Savings = DPI – personal outlays.

A true savings rate should compare personal outlays to only the portion of personal income that’s actually spendable (ex supplemental benefits). A savings rate computed on that basis remains stubbornly very negative. And debt burdens remain atrociously high, at a time when incomes and asset values remain under pressure.

Until about 1970, personal outlays (dominated by Personal Consumption Expenditures (PCE) (96.6%), but also including interest payments and transfer payments) were consistently held under the amount of cash receipts — but not in recent decades.”

And a few charts that demonstrate this:

Savings rates

While the official personal savings rate has always been positive, though trending down over time since 1982 until 2008, the unofficial personal savings rate has trended down since WWII, turning negative in the 1970s, and exceeding -10% for much of the 2000s . . .

Debt Growth Relative to Economic Growth Economic growth has increasingly relied on debt growth. The government is trying to preserve economic growth by levering up to fill the void left by private sector deleveraging. But will it be able to do so for as long as house-holds need to continue to delever? Consumerssumers over- consumed for years (because they could — because of housing “wealth”, MEW and excessive leveraging). Leverage allowed consumers to, over the course of the decade, basically get a bonus year’s worth of spending relative to pre-2000 historical spending norms.

Debt to growth ratio

>
Good stuff . . .  thanks, Mark.

Category: Consumer Spending, Wages & Income

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Personal Savings Rate”

  1. Cohen says:

    the debt growth vs. GDP growth chart really tells the story imo and it’s one of the main reasons I don’t expect the consumer to come back too strongly.

  2. mcHAPPY says:

    Also reading yesterday if you take away top 1% the savings rate is negative.

  3. beaufou says:

    You gonna get in trouble Barry, I thought you were on vacation.

  4. The Curmudgeon says:

    But does this include all the savings being put away in 401k’s, which are doing quite well about now, so long as it is all invested in Goldman Sachs?

    Just like F411 has all along said, it all started to go to hell with the Carter Administration. (Isn’t that what he said?) But, like Harper Lee in To Kill A Mockingbird, just blame Andrew Jackson, or any other figure in history that you’d like. It requires fewer degrees of separation for a liberal to pin all this on Ronald Reagan than it would to connect Kevin Bacon to Sissy Spacek.

  5. Pat G. says:

    Not bragging, but I guess my savings rate is off the charts compared to most Americans. And I got that way by being frugal and that is not going to change. Sorry Uncle Sam. You’ll just have to find someone else to buy all those widgets.

  6. Mannwich says:

    Only the nerds and geeks and worrywarts save money, Barry. Saving is so 1980′s.

  7. DeDude says:

    Most of the economic growth in the past decade was fake. It was made by increases in consumption although the consumer class did not have any increase in their income to sustain that consumption. Yet they could do it because the investor class had been so overloaded with money from stupid tax cuts that bobbles were created in housing (and other assets). Eventually all of that fake growth will have to be payed back. The question is how, by inflation, higher taxes on investor class, less public and private consumption (= less growth). Will the investor class finally grow a heart and/or a brain and realize that the only way to expand the economy is through a more fair income distribution. When the consumer dies we all die. Will they finally realize that income redistribution is not socialism but an absolute critical element for the success of capitalism.

  8. Pat G. says:

    @ Manny

    LOL What a facetious sense of humor you have.

  9. mwarywoda says:

    if anyone’s interested, there’s more data/charts at:
    http://www.scribd.com/doc/19275867/SavingsNIPA

  10. Onlooker from Troy says:

    Pat G.

    Likewise. And knowing that there are a very small number of real uber savers out there (doing a huge percentage of the overall savings), and seeing the terrible savings numbers, I’ve been terrified to think what a large percentage of people are just terribly cash flow negative for such long periods of time (my SIL, exhibit A).

    And therefore what their net worth is (negative, maybe grossly so) and what their ability to sustain through any kind of adversity. They’re literally living on the edge, with more debt as their fall back plan.

    It’s all thoroughly covered ground, but it’s so central to our future. And the notion that we can continue on without a very large and pretty extreme retrenchment period is just so naive, out of touch, or downright stupid.

  11. flipspiceland says:

    Charts are so perfect in the rear view mirror.

    Just once I’d like to see one as precise thru windshield.

    (with apologies to that two-faced politician, what’s his name)

  12. ben22 says:

    Props to Troy, I believe you have been saying this for a little while now. Good eye.

    @flips:

    (with apologies to that two-faced politician, what’s his name)

    Um, Senator, er uh, Congressman.

  13. Paul S says:

    Where do we get the top 1% number removed from this? Is there any way to really do that?

  14. bazily says:

    would love to see the specfic data he’s using for his definition of Personal Savings and calc the rate.

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  16. matt says:

    bazily: If I remember correctly, the data is in the flow of funds report, which is freely available from the Federal Reserve

  17. holulu says:

    Where is the link to this guy’s article? I like to read the whole thing.

  18. [...] Mark Warywoda of Addenda-Capital via The Big Picture: How is it was possible that debt-to-income ratios hadn’t improved much when the savings rate had gone up to 5%. The short answer is it comes down to the simple equation: Savings = DPI – personal outlays. [...]

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