The Decline Of The American "Saver"
With yesterday's release of personal income and consumption numbers came the realization of the obvious - the consumer is sunk. While the headline showed a positive increase of 0.3% and disposable personal income increasing 0.2% these were actually declines from the previous month. More importantly the question that needs to be asked, and as shown in the chart, where did the income actually come from. This is from the report:
"Private Wage and Salary Disbursements increased 14.1 Billion compared to an increase of 26.4 Billion in April." Okay, so personal incomes actually declined over the last month. However, it gets more interesting.
"Proprietors' income DECREASED 1.7 billion in May in contrast to an increase of 3.2 billion in April. Farm proprietors' income DECREASED 1.3 billion, the same decrease as in April. Nonfarm proprietors' income DECREASED 0.4 billion in May, in contrast to an increase of 4.5 billion in April." Hmm...this sounds worse. So, if incomes pretty much DECREASED across the board where did the income actually come from. Oh, here it is:
"Personal current transfer receipts increased $9.3 billion, in contrast to a decrease of 1.8 billion in April"
Personal current transfer receipts are the government handouts for unemployment, welfare, etc.
Now, take a look at the chart. This is not a new phenomenon. As we showed in the newsletter this past weekend ever since the "Breaking Point" occurred around 1980 more and more American's have had to dip into savings in order to supplement their declining level of personal income in order to maintain their lifestyle. The decline of the American "Saver" is not a good thing as savings lead to productive investment. If you save money in the bank that money, while on deposit for you, is lent out to businesses who use it to expand, hire, etc. The dearth of savings and incomes has led to a decline in the overall growth rate of the economy for the last 30 years and a greater and greater dependency on the government for support.
Also, rising commodity prices are hitting consumers where it hurts the most...right in the pocket book. While consumption expenditures did not rise last month specifically, almost 23% of all wages and salaries are being eaten up by food and energy. With more and more individuals literally living paycheck to paycheck it is hard to spur demand by small businesses to create jobs, hire and expand when their number one concern is "poor sales".
As always it is critically important to look beneath the headline blather and read what is really happening to the average American. While economists keep calling this a recession - more and more of average Americans feel like this is a depression.