Negative Savings Rate Continues
Nine months of zero to negative savings certainly makes a trend.
U.S. Dec. Personal Spending Rises 0.9%; Incomes Increase 0.4%
U.S. personal spending increased more than expected in December as incomes grew, a government report showed, suggesting a pickup in demand at the end of 2005 that may help boost first-quarter growth.
The 0.9 percent increase in purchases, the most in five months, followed a 0.5 percent November gain that was larger than previously reported, the Commerce Department said today in Washington. The report's price gauge tied to spending patterns and excluding food and energy, the Federal Reserve's preferred measure for tracking inflation, rose 0.1 percent in December and was up 1.9 percent for all of 2005.
Personal Savings Rate
Apr -0.2
May 0.0
Jun -0.6
Jul -1.4
Aug -3.4
Sep -0.5
Oct -0.1 (revised)
Nov -0.2 (revised)
Dec -0.7 (preliminary)
Caveat Emptor!
Grim
U.S. Dec. Personal Spending Rises 0.9%; Incomes Increase 0.4%
U.S. personal spending increased more than expected in December as incomes grew, a government report showed, suggesting a pickup in demand at the end of 2005 that may help boost first-quarter growth.
The 0.9 percent increase in purchases, the most in five months, followed a 0.5 percent November gain that was larger than previously reported, the Commerce Department said today in Washington. The report's price gauge tied to spending patterns and excluding food and energy, the Federal Reserve's preferred measure for tracking inflation, rose 0.1 percent in December and was up 1.9 percent for all of 2005.
...
The savings rate has been negative in eight of the last nine months, indicating consumers are dipping into savings to maintain spending. Consumers spent $42 billion more than they earned last year, the biggest dip in savings since record-keeping began in 1929.
Savings Rate at Lowest Level Since 1933
To finance the increased spending, Americans dipped further into their savings, pushing the savings rate for all of 2005 into negative territory at minus 0.5 percent. That was the lowest annual savings rate since a decline of 1.5 percent in 1933, a year in which the country was struggling to cope with the Great Depression.
Personal Savings Rate
Apr -0.2
May 0.0
Jun -0.6
Jul -1.4
Aug -3.4
Sep -0.5
Oct -0.1 (revised)
Nov -0.2 (revised)
Dec -0.7 (preliminary)
Caveat Emptor!
Grim
14 Comments:
Big day tomorrow, FOMC policy announcement and then Bernanke takes the helm. The next two or three months should be very interesting..
grim
Another Realtor MYTH being crushed.
Stagant incomes, housing affordability at lowest ever, and now exodus of people. It just does not make any sense.
Rationality is coming back and prices will be substantially lower by June 2007.
Outbound States
Despite its appeal as "The Golden State," California earned the dubious distinction of being America's No. 1 outbound state in 2005. According to the Allied Van Lines report, the state posted 11,387 outbound shipments compared with 8,564 inbound for a net relocation loss of 2,823 shipments. Other outbound states included: New Jersey, with a relocation loss of 1,591 shipments out of a total of 5,203; Michigan, 1,480 out of 5,128 and New York, 1,079 out of 7,655 total shipments. In terms of percentages of outbound moves, New Jersey rated No. 1 with 65.3 percent of its 5,203 total moves being outbound. Michigan was a close second with 64.4 percent of its moves being outbound.
Info from Allied Van Lines. So the exodus continues out of NJ. Sure would not want to be counting on home prices to fund a retirement. Substantial declines are on the way.
Also spoke with several people talking about property taxes and energy cost. On person said his property taxes have increased 50% in last 5 years while his heating bill has gone up about 30% in last year while trying to be conservative. Home prices have nowhere to go but substantially down for a long time.
Run the numbers and understand the commitment before signing the dotted line at todya's real estate prices becasue taxes always go up and energy prices are probably going to stay high.
I still feel there to be a high probability that the mortgage interest deduction is going to be slashed in the next two years.
I know it's the sacred cow, but the masses just need to be convinced that the cut is to tax the rich and keep homes affordable. At that point it's all but set in stone..
grim
Example:
Lets say a couple makes 4150k for the year. After tax and 401k contributions it is $90k.
Say the couple wants to buy a bigger house step up. They sell their $650k house with about 50% equity. So lets say after the HELOC they come out with $300k. they put $300k on $1 mil house.
They clear about $90k a year after everything.
So lets take a look.
$700,000 30 year mtg at 6%.
$4200 a month or $50,400 a year
Property taxes $15,000 a year
Car payments $700 month or $8400 a year
Utility $600 month or $7200 a year.
Total $81,000. Doesn't sound like a lot of fun in this household.
Who is going to buy all these large houses in the future while cost continue to escalate?
i say good luck.
The couple makes $150k a year.
The HELOC deduction will be cut first. These is being abused while consumers roll over credit card debt and other bills into HELOCs.
No way with the crooked lobbist of the Real Estate industry that primary mtg deductions will be overturned. Secndar mtg interest will go imo.
Grim:
Great information, as usual. It's icnredible to me that people don't see the signs of trouble ahead, preferring to bury their heads in the hand.
Heres' a link to another realtor cheerleader piece, http://www.dailyrecord.com/apps/pbcs.dll/article?AID=/20060129/BUSINESS/601290322&theme=FORECAST2
Search back through the archives for my piece on Warren Boroson, he's an industry shill.
He's the author of such books as:
How to buy a house for nothing (or little) down
and
How to pick stocks like Warren Buffett
I guarantee the only similarity between Warren Buffet and Warren Boroson is that they share first names, nothing more.
He is nothing more than an industry cheerleader, I refuse to even post his articles on the main page anymore.
-grim
By MARTIN CRUTSINGER
The Associated Press
Monday, January 30, 2006; 11:22 AM
WASHINGTON -- Americans' personal savings rate dipped into negative territory in 2005, something that hasn't happened since the Great Depression. Consumers depleted their savings to finance the purchases of cars and other big-ticket items.
The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing.
The savings rate has been negative for an entire year only twice before _ in 1932 and 1933 _ two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs.
With employment growth strong now, analysts said that different factors are at play. Americans feel they can spend more, given that the value of their homes, the biggest asset for most families, has been rising sharply in recent years.
But analysts cautioned that this behavior was risky at a time when 78 million Americans are on the verge of retirement.
"Americans seem to have the feeling that it is wimpish to save," said David Wyss, chief economist at Standard & Poor's in New York. "The idea is to put away money for old age and we are just not doing that."
It's bad really bad.
Analyst say it's different this time? it sure is. Incomes have been stagnant for 5 years and employees are downsizing.
It's bad . really bad.
Cutting the heloc and second mortgage deduction is going to significantly impact the remodeling/construction industry in these parts. I know much of remodeling boom we've seen has been funded through refis and helocs..
Viking appliances and custom cabinetry doesn't come cheap..
grim
Anon @ 11:29,
Thanks for the tip on the Boroson piece. At first I was going to ignore it. But I got ticked off at the bubble references and decided to see if I could dig some more dirt..
grim
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RickJ
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