Consumers Save in 2009

Monday, February 01, 2010

After negative savings rates in recent years, consumers did a 180 in 2009 saving 4.6% of their incomes, the highest rate since 1998. Consumers, unlike our spendthrift government, are deleveraging and saving their money amid an uncertain economic future. With equity markets still over 20% off their highs, many baby boomers need to save everything they can if they plan on retiring after years of saving too little and then seeing their wealth diminished in the Panic of 2008. Clearly, this is not good news for the White House that needs consumer spending to keep GDP numbers coming in strong. Friday's 5.7% GDP reading was astoundingly good, nevermind the skeptics that point out the large portion resulting from inventory building.

Dear Consumer: Saving is good, keep it up. Indeed, I am worried about a 10% unemployment rate and the likelihood of lowered growth with more saving. But, for years we have talked about how a negative savings rate is unsustainable and the consumer needs to deleverage. The fact of the matter is that this does not typically happen in good times, it takes a shock to scare consumers into doing it. So, let's hunker down and take the pain of slower growth so our elders have a chance at retiring sometime in the future.
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