Saturday, December 23, 2017

Shades of 10 years ago as savings keeps falling

On Friday, the US Bureau of Economic Analysis sent out their monthly income and spending report for December. And it showed two continuing trends- one of which is good for the short-term economy, but the related other should send a lot of warning signs about what's to come.

At the top glance, incomes seemed to hold up well for November.
Personal income increased $54.0 billion (0.3 percent) in November according to estimates released today by the Bureau of Economic Analysis. Disposable personal income (DPI) increased $50.9 billion (0.4 percent) and personal consumption expenditures (PCE) increased $87.1 billion (0.6 percent). Real DPI increased 0.1 percent in November and Real PCE increased 0.4 percent. The PCE price index increased 0.2 percent. Excluding food and energy, the PCE price index increased 0.1 percent.
But that low increase in Real DPI underscores the warning signs I see in the economy. Over the last 6 months, US personal income has barely increased past the rate of inflation, only going up by a total of 1.5% (and real disposable income is only up 0.45%). Which means wage and income gains aren’t coming back 1 year after Donald Trump’s election, which I don't think is what the typical blue-collar MAGA type had in mind.

But while incomes stagnate, spending is notably stronger, going up 2.4% in the same time period. This results in personal saving dropping by $114.5 million since May, putting the national saving rate is now below 3%, which we haven’t seen in 10 years.

And do you need to be reminded what happened to a US economy that had high spending and low income growth 10 years ago?...

Now sure, maybe the decrease in withholdings from the Piece of Shit tax bill will lead to a small bump in disposable income in the early part of next year (especially if you’re rich), and maybe the savings rate will get a bump up in early 2018. But that could be offset by higher medical care costs and the effects of the housing and stock bubbles driving up costs. I also have my suspicions that wage growth won’t follow those tax cuts, particularly since corporations are incentivized to hoard profits and automate over hiring people. If so, then the unsustainable habits of “high-spending, low savings” will continue.

Then add in the fact the Piece of Shit bill reduces demand for housing since more people won’t find it worthwhile be able to write off their property taxes and mortgage interest (check the newly updated Trump Tax Calculator if you don’t believe me), and it sure make me wonder what happens to the frothy housing and stock markets. Something’s gotta give, and if wages and real incomes aren’t going to rise, then American spending will slow its torrid pace sooner than later.

Which means that the inflated growth that we may be seeing now is likely to get deflated in the very near future. The only question is how bad it deflates, and how much economic damages results. And instead of trying to raise wages to restore some of this balance, we have a bought-off Congress and Wisconsin Legislature that wants to put this trend on steroids. Ugh.

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