household savings

Americans not making money, much less saving it

The news out today told a story of Americans going back to their puritan fiscal roots.

Americans Pay Back Debts Most Since ‘52 as Jobless Spur Savings

(Bloomberg) -- For the first time since Harry S. Truman was in the White House, Americans are paying back their debts, a phenomenon that just might help keep interest rates low as the Treasury sells a record $2 trillion of bonds and rising unemployment increases U.S. savings.

The stable rock of the American citizen, repairing his balance sheet so that the Great American Economy can recharge with a clean slate, healthy and ready to take on the world. American Capitalism in action, continuing to work in the same way it has worked for hundreds of years.

At least that is what the first paragraph implies. Once you scratch the surface the story isn't nearly so pretty.

Real Disposable Income per Capita Remains Lower

Despite large bonuses for some, average real disposable income per capita in February remained lower than in March 2007 as real spending stagnates with meager savings.

Today’s BEA report on personal income and spending in February provides important context for anticipating the possible depth and length of the current recession.

 BEA reports that even with large end-of-year bonuses for a few (mostly in the debt industry that is seeking taxpayer bailouts for their looted companies,) the average real disposable income per capita rose only 0.3% in February, up only 0.3% yr/yr and still below levels reached in March 2007. All of the gain in worker compensation in February (and more than all in January) is accounted for by the large bonuses. Proprietor income fell sharply in February and is down sharply yr/yr. 

  average income per capita, feb. 2008

Households Spend More Than Income

Despite no real change in January spending, for the first time on record households spent more than all current incomes for the 3rd consecutive month.

Today’s BEA report on personal income and spending shows that price-adjusted household spending was unchanged in January. Nevertheless, total household spending in January was more than ALL after-tax incomes as households again dipped into savings or fell deeper into debt for a record third consecutive month.

Note that these are not “median” figures but total income and spending for ALL households including those few that received very large bonuses in January.