Saving is on the rise; consumers are cutting back

News N’Economics | Feb 2, 2009

This morning, the BEA released its December personal income report. The news was slightly worse than markets expected and illustrates the continued decline in consumption, income, and prices. From the BEA:

Personal income decreased $25.3 billion, or 0.2 percent, and disposable personal income (DPI) decreased $25.1 billion, or 0.2 percent, in December, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $102.4 billion, or 1.0 percent.

The trend is clear: consumers are being forced to pull back, which is further evidenced by the downward revisions to November’s release:

  • Personal income was revised downward from a -0.2% decline to a -0.4%
  • Real PCE was first estimated to jump 0.6% in November, but was revised downward to just a 0.3% increase.

But another trend is also clear: consumers are saving.

saving_chart.PNG

The personal saving rate is on the rise, currently 3.6% in December and up 2.4% since September. It is not clear whether or not this is a long-term behavioral shift…yet. But one thing is for sure: consumers are cutting back on their spending habits.

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