Monday, March 01, 2010

U.S. Savings Rate Lowest Since October 2008

Today's U.S. economic releases were basically consistent with the bearish pattern I reported about last week.

While the ISM manufacturing index showed continued expansion in February, it was at a slower pace than the previous month. Meanwhile, construction spending fell in January.

While consumer spending rose, real disposable income fell both including and excluding tax & transfer payment changes. As a result, the savings rate fell to 3.3%, the lowest since October 2008. The savings rate is down from 5.4% during the second quarter of 2009.

This drop in the savings rate is likely primarily the result of the wealth effect created by higher house- and stock prices, as well as negative real interest rates. The low and falling savings rate will limit the ability of households to increase spending further.