Monday, January 29, 2018

Another month of more spending and less saving. Party like it's 2007!

Today’s personal income and saving report had some good news for the current economy, but some bad signs for the future.
U.S. consumer spending rose solidly in December as demand for goods and services increased, but the increase came at the expense of savings, which dropped to a 10-year low in a troubling sign for future consumption and economic growth.

The Commerce Department said on Monday consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased 0.4 percent last month after an upwardly revised 0.8 percent increase in November….

The figures were included in the advance fourth-quarter gross domestic product report published on Friday. Consumer spending accelerated at a 3.8 percent annualized rate in the October-December period, the fastest in three years, after rising at a 2.2 pace in the third quarter.
And that certainly indicates that consumers are feeling good about their current situation, which gives a nice boost to the economy. However, that free-spending mentality comes with a drawback.
Personal income rose 0.4 percent last month after advancing 0.3 percent in November. Wages increased 0.5 percent last month. Savings fell to $351.6 billion in December, the lowest level since December 2007, from $365.1 billion in the prior month.

The saving rate dropped to 2.4 percent, the lowest level since September 2005, from 2.5 percent in November. It dropped to 3.4 percent in 2017, the lowest level since 2007, from 4.9 percent in 2016. The low saving rate is a red flag for both consumer spending and economic growth.

And it wasn’t just in December that we saw that decline in saving. In the last 6 months of 2017, Americans stopped saving to a remarkable level.

June 2017 Personal saving $511.5 billion
Dec 2017 Personal saving $351.6 billion
CHANGE -$159.9 billion (-31.2%)

And while this did boost in GDP growth over the last half of the year, to the point where the country had its strongest 9-month stretch of growth in 3 years, the pattern is scarily reminiscent of what we saw a decade ago.

Also back then, we had the stock market at record highs and housing prices growing out of reach for many individuals. Remember what happened next, once the tunes on the musical chairs stopped playing in 2006-07 and the funny money started to dry up? And is there any legislation coming along that might limit this inevitable Bubble-popping from having bad effects on hundreds of millions of people? Of course not!

In fact, the Trump Administration and his GOP allies are trying to defang the small amount of protections that were put in place for consumers after the crash, particularly now that Trump OMB Director Mick Mulvaney has also made himself the interim director of the Consumer Financial Protection Bureau.
At the end of 2017, Mulvaney ordered a delay to the implementations of the bureau’s prepaid-card rules, which was set to go into effect in April, and would have forced financial institutions to limit customer’s losses in the event of a lost or stolen card, to provide easily accessible account information, and to look into and resolve transaction and account errors. The rule would have put significantly more pressure on the operators of such cards to provide accountability and risk management. In a statement that gave few specifics about what changes would be made, or when final implementation might occur, the bureau wrote, “The Bureau expects, based on its review of the comments received, to further extend the effective date of the 2016 rule.” Though the prepaid rule was finalized in 2016, implementation had been slowed as the agency sought comment for ways to improve it, and address concerns from the financial industry. In June, the agency asked for some specific feedback regarding tweaking the rules in order to prevent fraudulent claims, and to provide more clarity on how prepaid debit cards could be used in digital wallets.

On the same day that it announced a slowdown of prepaid implementation, the agency also announced that it was paring back requirements for the Home Mortgage Disclosure Act, which was put in place in 1975, and the authority to make rules related to the act was transferred to the CFPB via the Dodd-Frank Act. In 2015, the bureau set out to update what is known as Regulation C, the provision that governs how information on mortgages is collected, reported, and disclosed. And soon after, the bureau began toying with the idea of changing and clarifying some of Regulation C’s requirements. As of the first of the year, the agency will no longer ask financial institutions to resubmit erroneous data unless the errors were of material importance, and it won’t assess financial penalties for incorrect data. Going forward, the bureau is considering more significant revisions to the rule to reduce the reporting burden on financial institutions. That helps all types of financial companies that had complained about the difficulty of keeping up with the paperwork, reporting requirements, and fines associated with the rule….

Another telling change that’s come to pass since Mulvaney took over: changing the bureau’s mission statement, which appears on many public-facing documents such as press releases and emails. When Cordray, an Obama-era appointee, ran the agency, its mission statement read, “The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives.” In recent weeks, that statement was changed to include language that supports Trump’s broader push for deregulation, a somewhat odd addition for a regulatory body.

In full, the statement now reads: “The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by regularly identifying and addressing outdated, unnecessary, or unduly burdensome regulations, by making rules more effective, by consistently enforcing federal consumer financial law, and by empowering consumers to take more control over their economic lives.”
Huh, that sounds an awful like George W. Bush’s “ownership society” and the tripe that we heard in the late ‘90s when the Clinton Administration and the GOP Congress passed deregulated banks to replace the “outdated” laws behind the Glass-Steagall Act of the 1930s.

I’m not saying you should put your money under a mattress, but I am saying that the lack of savings and the people on charge having a desire to allow Wall Street to run wild sound awfully familiar, and in a very bad way.

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