From J. P. Morgan via Michael Batnick comes a very interesting chart of the personal savings rate over the last 60 years and it’s actually pretty astonishing. Cruise on over and take a look at it. It doesn’t flat-out prove anything but it suggests a lot and I’ve going to reflect on what it suggests in this post.
To put that personal savings rate into perspective in 2020 the personal savings rate was higher than it’s been in my lifetime. that’s a higher savings rate than Japan or Switzerland in 2015—both are countries well known for high savings rates. It’s not as high as China’s personal savings rate. In general a high savings rate means that people are worried about the future and Americans were more worried in 2020 than any time I can remember.
The household savings rate was absolutely terrible during the Aughts. That’s also the period during which American industries were being offshored, largely to China. I suspect those two things are related.
That high a savings rate suggests that the handouts from the federal government in 2020 didn’t stimulate much of anything other than savings. It was badly designed—not nearly targeted enough. Will the new round of handouts stimulate the economy or be saved? I’m not sanguine about that.
I guess there’s a glass half full way of looking at it. Today’s savings means the possibility of more consumption in the future. That’s balanced by John Maynard Keynes’s wisecrack that in the long run we’re all dead.
From Batnicks link to Klein’s piece at Barrons, look like as usual the rich are getting richer whilst those who consider a Waffle House breakfast a luxury are left out in the cold.
I am not surprised.
Given that much of the service economy was forcibly closed; discretionary spending would decrease; it is similar to a total-war economy. What’s different is increasing stimulus coming out of the emergency situation.
What is more ominous in the long term is household savings would be decreasing if not for government transfers; student loan, rent and mortgage moratoriums.
Milton Friedman observed that rationally; household spending only increased when there is a expectation of a sustained increase in income — at some point either creditors have to write off student loans/ investment properties/ mortgage bonds or households start paying their debts. Government debts cannot be written off and will be serviced via taxes or spending cuts. All portend to a future decrease in household income.
Goes to my thesis things will be hot a while; but medium term it is deflationary.
I can see why the savings rate would be higher, but that’s a really big number. I wonder what the distribution is and if that 15% rate is representative or skewed upward from wealthy savers.
Andy, I assume that the structure of the relief checks ensured that a lot would go to people earning more than two standard deviations above median income and it wouldn’t be surprising if those people were to save. I suspect it also reflects that people haven’t just been postponing ordinary purchases but things like paying the rent, their power bills, and their phone bills. If that’s the case the savings rate could really plummet. Or the personal bankruptcy rate could soar or both.
And that may even understate the amount of savings. What are the “unbanked” doing?
Boy, that covid policy response sure was great, eh? Curious has it right. What the hell did people expect?
“If that’s the case the savings rate could really plummet. Or the personal bankruptcy rate could soar or both.”
You bet.
“Andy, I assume that the structure of the relief checks ensured that a lot would go to people earning more than two standard deviations above median income and it wouldn’t be surprising if those people were to save.”
Maybe. Checks, which I certainly did not receive, aside, the wealthy had no choice but to reduce consumption. Eating out, entertainment events of all sorts, travel etc etc. And who took it in the shorts? For the most part the average Joe and the small businessman. Thanks, Fauci.
“What are the “unbanked†doing?”
Living hand to mouth, like my brother.
There is an interesting article (“Goldman Does The SLR Math, Stumbles On An Huge, $2 Trillion Problem”) behind the paywall at ZeroHedge, but for some reason my RSS reader is able to get it. I was able to search and find it at other sites.
Reuters has a short article with the details: Analysis: Fixed-income markets wary of Fed decision on bank capital relief