Personal Savings Rate Negative Again

Personal Savings Rate was negative again, now for the fifth month in a row, at -0.7%.

Consumer spending edges higher in October

The saving rate, the percentage Americans sock away after spending, taxes and interest payments, was minus 0.7 – the fifth straight negative reading. The saving rate has not been positive since March.

Personal Income also came in a notch below estimates.

Personal income also rose in October, by 0.4 percent – slightly less than the 0.5 percent increase forecast by Wall Street

Here is a direct link to the BEA report:


Personal saving — DPI less personal outlays — was a negative $61.5 billion in October, compared with a negative $70.9 billion in September. Personal saving as a percentage of disposable personal income was a negative 0.7 percent in October, compared with a negative 0.8 percent in September. 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.

Keep in mind this is October data.. With consumer spending still rolling along at a brisk pace, I’m sure the November and December data won’t be pretty either.

Caveat Emptor,

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13 Responses to Personal Savings Rate Negative Again

  1. grim says:

    In other economic news, the ECB (European Central Bank) raised interest rates a quarter point this morning.

    ECB Raises Key Rate by a Quarter-Point

    FRANKFURT, Germany – The European Central Bank raised its key interest rate on Thursday by a quarter of a percentage point to 2.25 percent, its first rate hike in five years.


  2. Richie says:

    In my opinion it won’t be positive for many months to come…

    October – March are the cold months. With heating costs on the rise, I don’t see how people will be saving more.

    December – January are notorious for people spending money on the holidays.

    The interest-only loans have a rising trend.

  3. grim says:

    ISM Index came in postive today. While the prices paid index dropped down from last months peak, it is still elevated enough to warrant concern.

    Unemployment numbers also positive.

    This data keeps pointing to more rate hikes on the horizon.


  4. Grim Ghost says:

    The OFHEO data on house prices in the third quarter came in. New Jersey saw a 13.81 % increase YoY, and a 3 % increase over the previous quarter.

    OFHEO data is based on the change in prices for existing homes and does try to take improvements into account as well. It is still somewhat unrepresentative because it focuses on cheaper houses (those that can be bought with conforming loans) and we know some of the cheaper houses in NJ in older urban areas ran up more. It is also heavily lagging since its based on sales that were probably decided as far back as June.

    But overall, we have to say that this data does not yet support an NJ slowdown yet. We do have some newer evidence of slowdowns in NJ, but those have yet to be reflected in this data.

  5. Grim:

    Correct me if I am wrong. The Disposable Personal Income (DPI) figure used to calculate Personal Savings does NOT include income that is placed in tax-deferred arrangements, such as 401(k)’s, IRA’s, and deferred compensation.

    It does not undo the gravity of these numbers, yet the caveat is that there may be an undercounting of the actual savings that may be occurring.

    The main issue though is that once placed in a tax-deferred vehicle, these funds are not easily accessible, but they do in fact exist, and could be accessed if necessary.

    Interestingly, even though bankruptcy laws have been recently overhauled, funds in Company Savings Plans have always been shielded and IRA’s have recently been awarded the same protections in court.


  6. grim says:

    Grim Ghost,

    About the OFHEO data released today, remember, it is Q3 data: July, August, and September.

    I agree 100% with their results, appreciation was there, but the pace had moderated.

    The fact is, we’re not going to see a clear trend in the OFHEO data until Q4 at the earliest, more likely Q1 of ’06.


  7. To me, these are the most telling numbers regarding where our economy, and the housing market will end up.

    All these holiday shopping stories you hear tell the same this: they go out and get an amazing deal on a shopping trip. Lets just say everything was 80% off. You saved $1200. But in fact, you spent $300.

    Except, this happens every weekend of every year. Where is this money coming from. Similar to the discussion yesterday – I earn a fair salary, have no credit debt, pay my rent, school loans, etc, pay into retirement savings, and house savings. There is not a huge amount of money left over at the end of the month.

  8. grim says:

    Angrybear has some great graphs based on the OFHEO numbers that illustrate the current trend as well as the late 80’s housing crash.

    House Prices


  9. Richard says:

    chicago, your point is similar to home equity which isn’t counted. someone can have $1 million equity and save nothing in the bank and be fine. there are those who question the validity of the savings rate figure given the lack of this data.

    you need to ignore built equity because there isn’t money sitting somewhere that is being invested and hopefully productive. you paid off your house. it doesn’t produce anything. deferred savings however cannot be ignored as its somewhere and working. to get a more accurate picture one needs to see tax deferred contributions.

  10. Richard:

    agreed – you would think that they would offer this number somewhere in the meat of the news release.

    If they can conjure up the rest of these figures to be measured, deferrals shouldn’t require much more effort.

    If they are consistently ignored, maybe their relevence is incidental. However, something tells me that it is a weakness in the analysis, because it reflects an “ability to save” – more slack in the belt to be used if squeezed.

    Hence, maybe there is more slack in the system than there appears.

    I certainly hope not – I want mass hysteria and I want it now :)


  11. grim says:

    I agree with those points, however I have yet to see any data that shows those deferred funds to have either increased or decreased significantly from the mid-90s until today. If that isn’t the case, the data series is still quite valid.

    I read a Time magazine article on 401(k)s a few months back that stated while the average 401(k) account contained something on the order of ~$45k, more than half of those accounts contained roughly ~$10k.

    Unfortunately, I think many people have made the mistake of treating home equity as their retirement nest egg. A very poor choice, especially from the viewpoint of diversification. Unfortunately, many have already squandered away their savings believing they were living in a golden-egg laying goose.

    You know, the behavior isn’t all that different from what we saw from the millionaires (on paper of course).


  12. Anonymous says:

    Save Who the hell needs to save. You don’t need any m oney down to buy a house car or miscellaneous items.

    Call it a ponzi. Monthly pay ponzi.

    What a racket the reatailers and the realtors and builders have done. They have convinced Consumers that spending is better than savings and think in terms of monthly payments to take away from the overpriced goods they are trying to sel you.

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