Income Savings at Lowest Level Since Depression

The Commerce Department reported yesterday that Americans had a 2006 savings rate of -1% -- not only did they on average spend everything they earned, but also dipped into their savings or borrowed money to finance their spending. 2005 savings were -0.4%; this year's figure is the worst since the -1.5% figure of 1933, in the midst of the Great Depression. The rate has now been in negative territory for 21 straight months; 2005-06 is the only the second time it's ever been negative, the other being 1932-33. Economists have various theories to explain the current lack of savings, from over-reliance on a strong economy/home equity to a consumerist mentality that drives people to spend even when they can't afford. In other figures released yesterday, consumer spending rose 0.7% and incomes rose 0.5%, both in line with forecasts. The Institute for Supply Management said its benchmark index came in at 49.3 last month, down from December's 51.4; anything below 50 is considered contracting. From the Department of Labor, initial unemployment claims were down 20k to 307,000, pushing them to their lowest level in a year.

Sources: BEA Personal Income and Outlays, ISM Report on Business, DOL Initial Claims, LA Times/AP
Commentary: Negative Savings Rate: Not So Worrisome • Gleaning Info from Robust GDP Data • Fed Policy: Bernanke Sounds the "All-Clear" • Cashing Out at the Top of a Market Melt-up
Stocks/ETFs to watch: S&P 500 Index (SPY), NASDAQ 100 Trust Shares ETF (QQQQ), Diamonds Trust Series 1 ETF (DIA), iShares Russell 2000 Index ETF (IWM), iShares Lehman 1-3 Year Treasury Bond ETF (SHY), iShares Lehman 7-10 Yr Treasury Bond ETF (IEF), iShares Lehman 20+ Year Treasury Bond ETF (TLT)

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Comments

[Sr. Pessimist]

It took 3-4 years to go from 1929's black crashes to 1932/1933's low savings levels. The crash already occured. It occured as soon as the Futures Buyers from Mars began buying stock market futures at messed up prices back in June of 2006. That would have been our crash. I suspected a historic October, but the economy was likely in worse shape 2006 than it was in 1929, so an accelerated drop would have been earlier than October in June/July. But now the reflection of the depression is seen in the savings of Americans, but accelerated. One theory off the top of my head is we are in an accelerating depression. We are being lied to by the propaganda machine about the economy, and people are behaving without the cautionary recourse they should have. So, in some ways, at least with respect to savings, we are already economically as bad off as we've ever been as a nation. Maybe, just like I said last year, we were already in a depression, and the bits and pieces of the rest of the truth are in the lesser-published numbers, like savings levels.

2007 Feb 02 11:11 AM

[Daniel Houston]

i'm by no means a cheerleader, but please, give me a break.

2007 Feb 03 12:41 PM