By Michael Lombardi, MBA for Profit Confidential
The amount Americans are "saving" is dropping like a rock…
Personal savings as a percentage of disposable income continue to drop in the U.S. economy. In the first quarter of 2013, Americans only saved 2.5% of their disposable income. This was a whopping 30.5% lower when compared to the same period a year ago! (Source: Federal Reserve Bank of St. Louis web site, last accessed July 26, 2013.)
The reason Americans are saving less has to do with a reduction in their earnings from the U.S. economy…
The median weekly earnings of full-time wage and salary workers (on a constant 1982-1984 dollar basis) decreased from $337.00 in the second quarter of 2012 to $334.00 in the second quarter of this year. (Source: Bureau of Labor Statistics, July 18, 2013.)
Meanwhile, inflation is rising in the U.S. economy…
What Americans could have bought for $1.00 in 2007 now costs them $1.13. That's a decline in buying power of 13% in just a matter of a few years. (Source: Bureau of Labor Statistics web site, last accessed July 25, 2013.) Unfortunately, our "buying power" will continue to erode as the Federal Reserve continues to print $85.0 billion a month in new paper money in the U.S. economy.
And with all this, Americans are pulling back on spending once again…
Last month, manufacturers of durable goods in the U.S. economy reported an increase of 0.2% in their inventories (from a month earlier) to $378 billion. This was the highest level ever recorded. (Source: U.S. Census Bureau, July 25, 2013.) Durable goods manufacturers in the U.S. economy are adding to their inventories as consumers are struggling; this tells me demand is low, as consumers are buying less.
Dear reader, during periods of economic growth, we should not be seeing declines in the savings rate, weekly earnings, and buying power of our currency.
The sad reality is that the U.S. economy is still in a dire state, despite what the politicians and mainstream media tell us.
Michael's Personal Notes:
Here's how a gradual slowdown in the global economy, something very few American or Canadian politicians are talking about, looks:
South Korea reported that in the first half of this year, exports of ships fell 25.3%, steel exports fell 12% percent, auto exports are down 1.7%, petroleum products are down 2.1%, and computer exports fell 3%. (Source: South Korea Ministry of Trade, Industry & Energy, July 2, 2013.)
The central bank of Thailand has lowered the growth forecast for its country, citing weakness in the global economy. The Bank of Thailand expects growth of 4.2% this year compared to its previous prediction of 5.1%. (Source: Bank of Thailand, July 19, 2013.)
Singapore, one of the most active container ports in the world, is facing similar issues. The country's non-oil exports to the global economy fell 8.8% in June from a year ago. Shipments to the U.S. from Singapore declined 15.9%, and to the European Union, they plummeted 33.6%. (Source: International Enterprise Singapore, July 17, 2013.)
The situation on the other side of the global economy hints at an economic slowdown as well.
The United Nation's Economic Commission for Latin America and the Caribbean (ECLAC) predicts Latin American countries will only grow at three percent this year-a slower rate of growth than its previous estimates of 3.5% in April. The ECLAC cited two main reasons for slower growth: Europe and China. The region is overly dependent on exports to these two economies. (Source: Economic Commission for Latin America and the Caribbean, July 24, 2013.)
On the surface, this may not sound like a big deal to many, but the reality is that an economic slowdown in the global economy will have an impact on U.S.-based businesses that are operating globally.
McDonalds Corporation (NYSE/MCD) is a great example of an American company witnessing the slowdown in the global economy firsthand. For the second quarter of this year, the company reported its global sales rose only one percent from a year ago-and it expects global sales to remain challenging throughout the year. (Source: McDonalds Corporation, July 22, 2013.)
It's only a matter of time before we start to hear more about the economic slowdown in the global economy. Currently, the reality is hidden by extreme optimism. I am watching all of this very carefully, and I caution investors-beware: the global economic slowdown will eventually hit the earnings and stock prices of the 40% of S&P 500 companies that export abroad.