Monday, May 01, 2006

Personal Savings Rate Negative Yet Again

From the BEA:

PERSONAL INCOME AND OUTLAYS: MARCH 2006

Personal income increased $88.8 billion, or 0.8 percent, and disposable personal income (DPI) increased $78.4 billion, or 0.8 percent, in March, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $51.8 billion, or 0.6 percent. In February, personal income increased $33.2 billion, or 0.3 percent, DPI increased $23.1 billion, or 0.2 percent, and PCE increased $20.0 billion, or 0.2 percent, based on revised estimates.
...
Personal saving -- DPI less personal outlays -- was a negative $32.5 billion in March, compared with a negative $58.3 billion in February. Personal saving as a percentage of disposable personal income was a negative 0.3 percent in March, compared with a negative 0.6 percent in February. Negative personal saving reflects personal outlays that exceed disposable personal income. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods. For more information, see the FAQs on "Personal Saving" on BEA's Web site.

48 Comments:

Blogger grim said...

From Bloomberg:

U.S. March Personal Spending Rises 0.6%; Incomes Rise 0.8%

Americans spent at a faster pace in March, encouraged by higher wages that helped take the sting out of a surge in gasoline prices, a government report showed today.

Personal spending rose 0.6 percent in March following a 0.2 percent increase in February, the Commerce Department reported in Washington. A measure of prices favored by Federal Reserve policy makers rose. Incomes rose 0.8 percent, the most since September, after a 0.3 percent increase the previous month.
...
The report's price gauge tied to spending patterns and excluding food and energy costs, the Fed's preferred measure for measuring inflation, rose 0.3 percent in March after rising 0.1 percent in February. The index was up 2.0 percent from the same month in 2005, compared with a 1.8 percent rise in February. Economists surveyed by Bloomberg forecast a 1.9 percent increase from a year earlier, the median estimate.

5/01/2006 07:45:00 AM  
Anonymous Anonymous said...

To put this in some context, in the mid 90s the savings rate as a percent of income was around positive 4.5 percent. It has been steadily going down since then.

This figure is ignored a lot when people are creating predictors of the housing market's decline. It should not be.

Whether people are able to save money and have a cushion is a huge factor in how much pressure they will feel to sell homes in uncertain/bad times.

As an example of how researchers and the press can miss this, the times walkthrough blog covered this "reassuring" report last week

http://walkthrough.nytimes.com/?p=507

which uses very broad figures about home equity to posit that the RE market will not suffer a serious decline.

But equity is just a part of it. One can't eat their equity - if savings rate is negative, affordability is low, the market is flat or declining -the pressure to sell, or the potential to forclose is much greater.

Also, this report fails to not that it only takes a certain number of desperate buyers to tilt the market (just as it only took a certain number of speculators to jack it up).

This is the real story these researchers and reporters should address -- how has the number of at-risk home buyers changed, and if their fortunes turn, how will they in turn affect the rest of us?

5/01/2006 08:15:00 AM  
Anonymous Anonymous said...

Pardon the typo, meant 'desperate sellers' in 2nd to last paragraph (although it was desperate buyers who drove the bubble up!)

5/01/2006 08:17:00 AM  
Anonymous Anonymous said...

not related to the post, but i wanted to mention that I saw Brad from Inman on CNBC SqwakBox this morning in a short interview. He talked about realtors true feelings on the market through anonymous posts they've made on his website. Many talked about significant increases in inventory and pricing pressure etc. Brad, when asked about the bursting of the bubble, said he expects a soft landing. I personally disagree with his soft landing statement but nevertheless I just wanted to mention that he appeared on CNBC. I hope to see GRIM there soon....

bobby

5/01/2006 08:32:00 AM  
Blogger grim said...

4 "Surprises" this morning.

Personal Spending Beats Estimates
Personal Income Beats Estimates
ISM Index Beats Estimates
Construction Spending Beats Estimates

5/01/2006 09:10:00 AM  
Anonymous Anonymous said...

The bonds should sink and yield jump

5/01/2006 09:12:00 AM  
Anonymous Anonymous said...

"The sharp increase in foreclosures in Q1 continues a steady upward trend that we've observed since the beginning of last year," said James J. Saccacio, chief executive officer of RealtyTrac. "Foreclosures have now increased in four consecutive quarters and are on track to go above 1.2 million in 2006, which would push the nation's annual foreclosure rate to more than 1 percent of U.S. households."

http://rismedia.com/index.php/article/articleview/14291/1/1/

5/01/2006 09:18:00 AM  
Anonymous Anonymous said...

Does anyone really nelieve that personal incomes went up 0.8% in March?????????

This is an annualized rate of 9.6%.

Many are lucky to get 3% increase in income annualized.

It's all a ponzi.

5/01/2006 09:22:00 AM  
Anonymous Anonymous said...

10 year at 5.13%.

Mtg rates going up up up so prices should be going down down down on % terms.
Rates up 20% so prices should be down 20%!

5/01/2006 09:50:00 AM  
Anonymous Anonymous said...

Just my opinion... but i do believe march was the last month that included bonuses from 2005... i think that's why income is a bit higher.

5/01/2006 10:11:00 AM  
Anonymous Anonymous said...

Hi Everyone,

I have a quick question. Does anyone know for a fact that the Livingston Mall is being torn down? If so, do you have any approximate dates, etc? Thanks for your help!
-CJ

5/01/2006 11:21:00 AM  
Blogger njresident286 said...

I have been hearing that livingston mall rumor for years. Everytime I go, it seems to be busy. It does provide a niche market for those stores that are not available at short hills. And I am sure short hills shoppers do not want the Livingston Mall shoppers to then come to short hills.

5/01/2006 11:29:00 AM  
Blogger chicagofinance said...

Anonymous said...
10 year at 5.13%.
Mtg rates going up up up so prices should be going down down down on % terms.
Rates up 20% so prices should be down 20%!
10:50 AM

I don't know about those figures, but with an absolute increase of 100bps on a 30-yr fixed, it is rather shocking that prices [closing, not ask] haven't really trended down.

I have to believe that buyers are resilient, and are still finding creative ways to maintain the size of the "monthly nut" which is how everyone evaluates their decisions [as specious as that metric is].

NO PAIN = NO PAIN

I don't like to say this, but we're going to have to hit bottom if we are going to wean people off the bottle. :(

5/01/2006 11:37:00 AM  
Blogger Van Housing Blogger said...

The savings rate in British Columbia for 2005 was -7.3%. Beat that! link

5/01/2006 11:43:00 AM  
Anonymous Anonymous said...

Why save money when you can lease an Escalade, or Mercedes C class?

Image > saving $

5/01/2006 11:45:00 AM  
Blogger grim said...

In the past year, we've only really seen two things take place:

Buyer and Seller psychology begun to shift.

The short-term mortgage (ARM, IO, Option) rates have increased dramatically. The long-term fixed products have increased somewhat as well.

The gallup poll gives us a nice quantification of the first piece.

The MBA survey also gives us some clues.

However, we haven't seen any real 'trigger' yet, only slow changes and shifts. What to look for?

The OCC requesting dramatic lending standard changes.

Possible reserve requirement changes (long shot here).

Liquidation of Fannie and Freddie portfolios.

Supply spikes due to ARM recasting.

Foreclosure spikes due to ARM recasting.

etc..

5/01/2006 11:56:00 AM  
Blogger Richie said...

The best wildcard in this whole situation for those who got in over their heads:

The new bankruptcy laws.

5/01/2006 12:13:00 PM  
Blogger Metroplexual said...

Richie,

I caught an article on the PRWEB website yesterday just to followup on the new BK law. They said that credit card companies can charge 32%.

Financial "Perfect Storm" Brewing Over America's Middle Class, Says Bankruptcy Expert


A weaker housing market is the final element of a confluence of economic currents which, if left unchecked, may well lead to a financial debacle for America's Middle Class Homeowner. This can be averted only with luck, or by timely action at the State and Federal Legislative and Regulatory levels.

New York, NY (PRWEB) April 30, 2006 -- "A weakening housing market, together with other financial currents in the U.S. Economy, represents the potential final impetus to a ‘Perfect Storm’ brewing over the American Middle Class, and, without luck or prompt legislative action, may lead to disaster, especially for homeowners.” So says Warren R. Graham, a New York Bankruptcy Attorney. The other prevailing currents threatening to collide over the heads of an unsuspecting public, claims Graham, include rising interest rates, limited recourse to bankruptcy relief and the virtual elimination of usury and other restrictions on credit card issuers.

For many millions of Americans, who live “paycheck to paycheck,” the only thing defining their status as Middle Class, and differentiating them from the so-called “Working Class” is their ownership of a home, and the equity accumulated in it. Graham points out that that equity is being eroded by two factors: the first is the threat of declining home values, and the second is the propensity of homeowners, over the last few years, to refinance their homes or take out home equity loans at very low adjustable rates to pay off high interest credit card debt. Now, Graham says, the equity is at risk, because of the softening in the market, the fact that the adjustable rates have risen consistently (and are expected to continue to do so), and the reality that much of it has already been borrowed out to pay off credit card debt, and for other purposes, such as home improvement.

Coupled with the risk of declining home equity, Graham argues, is an enormous, and, to date, largely invisible swinging of the pendulum toward the credit card issuers, and their sponsoring banks. After years of intense lobbying (on both sides of the political aisle) by that constituency, the bankruptcy laws have been extensively rewritten, so as to restrict, severely, access to certain kinds of bankruptcy relief, especially for those who, while certainly not well-off, earn above their respective state’s median income. “Credit card holders, of course, had no lobbyists on retainer,” says Graham. At the same time, the same financial institutions have found creative ways, by re-domiciling themselves in states hungry for their business, such as South Dakota, to avoid the restrictions of usury laws. So now, observes Graham, it is not unusual for your credit card interest rate, if you are carrying a balance, to rise suddenly from that 5% “teaser rate,” to an unprecedented 32%, in the event of a default. “And worse,” Graham points out, “a ‘default’ doesn’t have to be non-payment. Your cardholder agreement, which you likely have not read, allows periodic review of debt to income ratios, and problems with other creditors as a justification to change rates on almost no notice.” Add to that the changes in banking procedures, by which banks have restructured their “minimum payment” requirements on cardholders carrying balances, “and that monthly $250 minimum payment has now jumped to $600, or more, multiplied by the number of cards the consumer may be carrying.” The homeowner who wants to do something about this has a much harder time doing so, according to Graham. “His or her house has less equity, because of a softening market, or because it has already been tapped by the homeowner, and the cost of borrowing against it is higher, by virtue of climbing mortgage rates.”

In the meantime, the Middle Class homeowner’s income has not even remotely kept pace with these increased costs, Graham points out. “And this does not even take into account the likely substantial effect of rising gasoline and energy costs.” “And when the homeowner finally reaches the end of his or her tether,” says Graham, “ his or her income level may prevent recourse to bankruptcy. Chapter 7 liquidation may be unavailable altogether, and Chapter 13, in which a percentage of creditor obligations are paid over time, while mortgage debt remains intact, may not be feasible, because the income may simply not support the cost of financing a repayment plan.” Thus, Graham concludes, bankruptcies may be dismissed, and homeowners may have to dispose of their properties, or worse, lose them to creditors in satisfaction of their mounting debts.

According to Graham, “one does not need a crystal ball to see that a potential debacle is looming for the Middle Class homeowner.” Unless pure luck prevents these currents in the economy from coming together, or unless the U.S. Congress revisits its ill-conceived bankruptcy reform (especially that part of it geared to consumer debt) and state banking departments review their willingness to ignore usury prohibitions that date back to biblical times, disaster may await. “The credit card industry, in the flush days of the late 1990’s started down this path,” says Graham, “and may have overplayed its hand. But without attention and intervention by legislators and regulators, the victim is likely to be the backbone of this Country—the American Middle Class.”

# # #

Trackback URL : http://www.prweb.com/chachingpr.php/RmFsdS1Qcm9mLU1hZ24tU3VtbS1IYWxmLVplcm8

5/01/2006 12:24:00 PM  
Blogger chicagofinance said...

If this interests you, please contact me by close of business tomorrow.

Robert H. Frank - A popular and widely-followed economist, educator and author, Prof. Frank is a monthly contributor to the "Economic Scene" column in The New York Times, and co-authored an economics textbook, Principles of Economics, with Ben Bernanke, the new Federal Reserve Chairman.

Prof. Frank's will speak on...
“Robin Hood is Dead - How Income Growth at the Top Has Affected the Middle Class”

5/01/2006 12:51:00 PM  
Blogger Metroplexual said...

This comment has been removed by a blog administrator.

5/01/2006 01:54:00 PM  
Blogger Metroplexual said...

chicagofinance,

Where is he speaking, I am interested?

5/01/2006 01:56:00 PM  
Blogger grim said...

I'm interested, NYC or Jersey?

5/01/2006 01:57:00 PM  
Blogger Richie said...

Financial "Perfect Storm" Brewing Over America's Middle Class, Says Bankruptcy Expert

I can see it now.. "The Perfect Storm II" with Clooney playing David Lereah.

Will Captain Leareah go down with the ship? You'll have to see the movie to find out!

-Richie

5/01/2006 02:24:00 PM  
Blogger grim said...

CF, any comments on:

3:30 pm : Market spikes lower going into the close after CNBC reports that Fed Chairman Bernanke said the media misunderstood his remarks last week. The news, accompanying an interview with Chicago Fed President Moskow, has weighed heavily on bonds, lifting the yield on the 10-yr note as high as 5.145%. Further deterioration in bonds has prompted even more aggressive consolidation in the influential Financial sector while CNBC also reporting that Bernanke said it is worrisome that anyone would think of him as dovish has been a catalyst behind the Technology and Consumer Discretionary sectors turning negative. DJ30 -2.97 NASDAQ -11.24 SP500 -3.09 NASDAQ Dec/Adv/Vol 1606/1416/1.69 bln NYSE Dec/Adv/Vol 1432/1793/1.41 bln

5/01/2006 02:47:00 PM  
Blogger chicagofinance said...

just caught this

5/01/2006 02:51:00 PM  
Anonymous Anonymous said...

Housing BUST!

Prices will be tumbling in a few months and panic will be quite apparent.

Ba ba ba ba ba ba ba BOYCOTT HOUSES!!

Boooooyaaaaaaaa

Bob

5/01/2006 02:54:00 PM  
Blogger grim said...

Unbelievable remarks by Bernanke

5/01/2006 02:58:00 PM  
Anonymous Anonymous said...

what did ben b. say? anymore info available?

5/01/2006 03:01:00 PM  
Blogger grim said...

Trying to find actual quotes.

5/01/2006 03:16:00 PM  
Anonymous Anonymous said...

Even if prices drop 25% houses are still not affordable with rising rates?
Prices need to drop alot more with rising rates.

5/01/2006 03:16:00 PM  
Anonymous Anonymous said...

WASHINGTON (MarketWatch) - CNBC anchor Mario Bartiromo said Monday that Federal Reserve Chairman Ben Bernanke told her that the media and the markets had misinterpreted his words last week as a signal that the Fed would pause after one more rate hike.
Bartiromo said Bernanke told her that he intended to indicate that the Fed is flexible, not to brand himself as a dove on monetary policy. Bernanke apparently made the comments at the White House Correspondents Dinner, an annual gathering of top media and politicians, on Saturday night.
Financial markets sold off on Bartiromo's comments. Bond yields leaped higher and stocks fell. See Market Snapshot.
Last Thursday, Bernanke told the congressional Joint Economic Committee that the Federal Open Market Committee would pause at some point to reassess the impact of its steady stream of rate hikes over the past 22 months that brought the federal funds rate from a four-decade low of 1% to 4.75% currently.
Such a pause should not be seen as ruling out further rate hikes, Bernanke said. See full story.
Most market analysis interpreted Bernanke's remarks as clearly signaling that the Fed would not raise rates at the June 20 meeting after a still-expected rate hike to 5% on May 10.
Earlier Monday, bonds and the dollar had weakened after strong economic data and a surprisingly high reading on core inflation for March suggested a June pause might not be in the cards.


-K

5/01/2006 03:27:00 PM  
Blogger Metroplexual said...

The markets were trying to put those words in his mouth. He basically said that they could go either way.

5/01/2006 03:51:00 PM  
Blogger pesche22 said...

hovnanian cut forecast . see the news . stock symbol hov

5/01/2006 04:24:00 PM  
Anonymous Anonymous said...

related to the discussion we had re: young adults moving back with their parents etc

http://money.cnn.com/2006/05/01/pf/college/reverse_dowry/index.htm?cnn=yes

5/01/2006 04:37:00 PM  
Blogger chicagofinance said...

grim said...
CF, any comments on:


rookie mistakes

thought it wouldn't happen

two wrongs don't make a right though

after last week, he should have shut up, not blabbed something to Bartiromo

I WILL SAY THAT BARTIROMO SITTING ON THAT COMMENT UNTIL 3PM TWO DAYS LATER PUSHES THE ENVELOPE ON INTEGRITY!

Someone could have made a lot of money knowing this information was in the hopper to be disclosed on Monday - and you can bet there were parties out there that traded on this one.

If she didn't want to smell bad on this one, she should have said something on Sunday before the Australian and Japanese markets opened.

She should get busted for this one.

5/01/2006 09:16:00 PM  
Anonymous UnRealtor said...

RE: college loans

I don't have much sympathy for college whiners complaining about student loans.

I put myself through college, using grants, loans, and scholarships. Upon graduation, I then paid back triple and quadruple the minimum payment, until all was paid off in 3 years.

It was painful, and it was a bummer, but not once did I complain or blame anyone else -- I was thankful that I had the opportunity get a degree and a decent job.

No loans, no school, no job.

5/01/2006 11:23:00 PM  
Blogger Metroplexual said...

I never caught his interview with the "money honey". That changes everything.

5/02/2006 06:15:00 AM  
Anonymous Anonymous said...

Bartiromo was bad, but Bernake SAW what it did to the markets right after he said it.

A little clarity could have come from his own mouth before he slid it to Bartiromo.

Thought his whole deal was he was going to be more frank and open than Al -- seems more like we're being played

5/02/2006 06:59:00 AM  
Anonymous living online said...

Thanks for your insights......

Steve @
http://www.lifeincome.org

5/06/2006 02:35:00 PM  
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