- Today’s economic data showed that aggregate Personal Income grew at 0.5 percent in December, the strongest monthly gain in 9 months. People spent only a small portion of that gain, though, as the savings rate rose.
- Breaking down the components, the wages of everyone combined grew by 0.4 percent while small business income grew by 0.1 percent. Dividend and rental income grew at a healthy pace by better than 1 percent over a single month. Compared to a year ago Personal Income is higher by 3.8 percent.
- The savings rate rose back up to 4.0 percent in December, from 3.5 percent in the previous month. (See graph below). During the economic boom years, the savings rate was a paltry 2 to 3 percent. It then rose to the 4 to 6 percent range for most months after the 2008-2009 economic recession. That is to say, consumers are being cautious.
- Though cautious consumers are holding back economic growth potential, some sobering up and saving for rainy days may provide for less disruption if another economic crisis were to occur in the future. As a comparison, the savings rate in China is about 35 percent.
- The cautious U.S. consumer suggests that the first quarter GDP will be quite slow at around 1 to 2 percent. That could then translate into the unemployment rate not falling in any notable way over the next 6 months.
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