While included in Friday’s Q4 GDP report, we at least get to see how it ended with the just released income and spending data for Dec. Income rose .4% which was .1% above forecasts and Spending rose .2%, .1% below expectations, thus the Savings Rate rose to 4.8% from 4.5% and is the highest since June. While wages and salary’s rose just .1%, a reduction in personal taxes paid helped to lift disposable income by .4%. Because the headline PCE rose .1%, REAL disposable income rose by .3% and REAL spending rose just .1%. Core PCE rose also by .1%. The key takeaway from this data remains and will be for the next few yrs, that of the Savings Rate as a reflection of how individuals are dealing with a tough economy, uncertain job prospects, less access to credit and the desire to hold less debt. The 50 year average is 7% and a reversion to this mean I believe is inevitable over the next few years.
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