Savings in America hit 5%, up from nil last year

| 2 March 2009 09:43

Predictions that the savings rate would increase as the Depression in America took hold are coming true. The Bureau of Economic Analysis reported that the savings rate in the U.S. hit 5.0%.

Personal outlays — PCE, personal interest payments, and personal current transfer payments increased $54.5 billion in January, in contrast to a decrease of $103.5 billion in December. PCE increased $56.4 billion, in contrast to a decrease of $101.2 billion.

Personal saving — DPI less personal outlays — was $545.5 billion in January, compared with $416.8 billion in December. Personal saving as a percentage of disposable personal income was 5.0 percent in January, compared with 3.9 percent in December. For a comparison of personal saving in BEA’s national income and product accounts with personal saving in the Federal Reserve Board’s flow of funds accounts and data on changes in net worth, which help finance consumption, go to www.bea.gov/national/nipaweb/Nipa-Frb.asp.

This is actually good news, but it means some serious problems for the global economy. When people save, they don’t buy — and American’s have been the world’s biggest buyers during the debt-addled binge that just took place during the housing bubble. Therefore, one should expect a very nasty GDP number in the U.S. for Q1 2009. But, one should also expect continued weakness from major exporting countries like Japan, China and Germany.

Bets on the U.S. consumer are finally coming a cropper. Americans must replenish their diminished savings. They are now doing so. However, the decline in consumption will hit the global economy extremely hard.

Source
Personal Income and Outlays – U.S. Bureau of Economic Analysis

avatar About Edward Harrison

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages, a skill he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.

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