This morning’s release of personal income and spending data revealed that the savings rate plunged to its lowest level since 2008 in December, excluding the outlier data point in January 2013 that resulted from a spike in early dividend payments related to the fiscal cliff and subsequent drop.
“With real incomes after tax down 0.2%, the saving rate dropped to 3.9% from 4.3%,” says Ian Shepherdson, chief economist at Pantheon Macroeconomics.
“The downward trend in savings cannot continue; we believe the Q4 decline was due to people spending unexpectedly high cash balances resulting from lower spending on energy in Q3. Savings will rebound in Q1. Even with better income — December was hit by the weather — we look for real spending to slow to 2-2.5% from 3.3%. The chart shows that the saving rate is now below the low seen in the 2002-04 period, before the housing boom allowed it to fall even further. With a repeat of the housing boom unlikely, the saving rate likely will struggle to stay at this low level.”
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