The latest personal savings numbers for the U.S. came out on Friday showing that the personal savings rate contined to increase in May.
In 2005 I wrote an article predicting that the U.S. equity markets were set for a period of under-performance when compared to the prior 10 years (http://chartingtheeconomy.com/?p=71). Part of my prediction was based on the assumption that the continued decline in personal savings was unsustainable. In the article I state, “the growth in personal consumption expenditures cannot continue to outpace growth in personal income indefinitely.” Given that consumer spending accounts for around 70% of GDP, I reasoned that the inevitable slowdown in spending (and increase in savings) would slow the economy for many years.
In February 2009, I wrote another article stating: “To compensate for their lack of savings (savings gap) since the early 1990’s consumers will likely move to savings rates that are above the long-term average.” (http://chartingtheeconomy.com/?page_id=56) As you can see from the above chart, this just happened for the first time since the early 1990’s. In May 2009, the personal savings rate hit 6.9% just surpassing the 50-year average of 6.83%.
Data source:
U.S. Bureau of Economic Analysis
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