Savings Rate approaching 50 yr average

The June income and spending data just released was included in Friday’s GDP report but the data relative to the estimate will lead to a very, very slight adjustment. Both Income and Spending were flat m/o/m vs expectations of up .2% and .1% respectively. With the headline PCE inflation deflator down .1%, REAL income and spending each rose .1% and the Savings Rate rose to 6.4% from 6.3% in May. The Savings Rate is now approaching the 50 year average of 6.9% and will very likely head above that over the next few years as the pendulum swings in the other direction as it got as low as .8% in Apr ’05. One hand, higher savings will put a crimp on consumer spending which of course makes up a majority of US GDP but on the other, higher savings is the fuel for investment which helps to finance businesses everywhere that are getting crowded out in their borrowing by the enormous needs of the US gov’t and some European ones.

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