Monday, June 01, 2009

Consumption Down, Saving Rate Increases in April

by Bill McBride on 6/01/2009 08:44:00 AM

From the BEA: Personal Income and Outlays, April 2009

Personal income increased $58.2 billion, or 0.5 percent, and disposable personal income (DPI) increased $121.8 billion, or 1.1 percent, in April, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $5.4 billion, or 0.1 percent. ... The pattern of changes in income reflect, in part, the pattern of reduced personal current taxes and increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009.
...
Real PCE -- PCE adjusted to remove price changes -- decreased 0.1 percent in April, compared with a decrease of 0.3 percent in March.
...
Personal saving as a percentage of disposable personal income was 5.7 percent in April, compared with 4.5 percent in March.
A few points:

  • Incomes increased sharply boosted by the stimulus plan.

  • Consumption declined from March to April, and Q2 is off to a fairly weak start.

  • Personal saving as a percentage of disposable personal income was the highest in 14 years.

    Personal Saving RateClick on graph for large image.

    This graph shows the saving rate starting in 1959 (using a three month centered average for smoothing) through the April Personal Income report. The saving rate was 5.7% in April. (5.1% with average)

    The saving rate was boosted by the stimulus package, but this suggests households are saving substantially more than during the last few years (when the saving rate was close to zero). The saving rate will probably continue to rise (an aging population usually pushes the saving rate higher) and a rising saving rate will repair household balance sheets, but this will also keep pressure on personal consumption.

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