Saturday, October 01, 2005

Two Ominous Facts in Latest Personal Income Report

The latest report on personal income in the United States contains two facts which might mean that an economic downturn could come faster than I previously thought.

1) Disposable personal income is rising surprisingly slowly. In fact on a per capita basis and deflated with the PCE deflator (who is the lowest of all inflation gauges) disposable personal income is now lower than it was late last year. As disposable income measures the sustainable growth rate of spending this means that all per capita growth since then have been based on borrowed money.

2) The personal savings rate have now fallen to -0.7%. While that is somewhat lower than the -1.1% reached in July, it is actually higher than the original -0.6% reading for July. This means that for the first time since the Great Depression have the savings rate been negative for three months in a row.

There is thus simply no basis at all for further spending growth. While the expected spending boom for the Federal government may help keep things going at least statistically for a while, the prospects for the U.S. economy seem to worsen faster than I previously thought.


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