Income/Spending/Savings Rate

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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