According to the Bureau of Economic Analysis and its monthly report on Personal Income/Spending, in the past few months, US consumers have cut back on big-ticket purchases and expenses and started saving for a change. Nominal consumer spending decreased 0.3% for the month of September, after a flat August. This was inline with economists estimates, as a loss was foreshadowed after yesterdays negative GDP report. The decrease was mainly due to a drop in spending on durable goods, which fell 0.2% in September. It was the second straight monthly decline. Adjusted for inflation, real consumer spending was down by 0.4 percentage points.
Also last month, personal incomes rose 0.2% after rising 0.4% in August. Disposable incomes adjusted for inflation rose 0.1% after a sharp 1.0% decline in the previous month. With income rising faster than spending, the personal savings rate rose to 1.3% in September, up from 0.8% in August.
The foundation of every successful economy begins with savings. If there’s no national savings, where is the money for investment going to come from? A high national savings rate, not low interest rates or a large money supply, is essential for long-term economic growth. It’s good to see that there is a silver lining to this mess. Hopefully, the increased savings is a permanent trend, and not just a temporary phenomenon.
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