“Americans increased their spending in September at twice the rate that their income grew, a sign of confidence in the economy,” reads the lede to a recent Associated Press report.
Wait, hold on a second. Like most of the economic data put out over the past few years, this report requires a closer look.
Yes, there has been an increase in consumer spending. That much we know. And seeing as how this accounts for almost 70 percent of economic activity, this is a good thing, right? Well, according to writers at Zero Hedge, the report seems to confirm something a few analysts have long suspected, namely, that Americans are wiping out their savings.
“Today's personal income and spending report for the month of September was just the latest datapoint confirming that the US consumer is once again massively cash-strapped and is eating, literally, into their savings,” Zero Hedge notes.
“While Personal Income rose at the expected pace of 0.4%, Spending in the last month came well above expectations of 0.6%, printing at 0.8%, which meant that on a net basis Consumers, always hopeful, outspent themselves by a margin of 0.4%,” the report adds.
The big takeaway from the data is the fact that savings rates have decreased from 3.7 percent in August to 3.3 percent in September, the lowest they've been in 2012.
"This was the lowest Savings print in 2012, and higher only compared to last November's 3.2%, which in turn was the lowest print since the start of the second great depression," the report continues.
Which begs the obvious question: What "recovery"?
"[O]vereager consumers saw their nominal incomes increase... and decided to outspend said rise at double the rate of increase! At this pace, by the time Thanksgiving rolls out, US consumers will have no savings at all left to tap and living will be strictly a month to month activity," the report adds.
Amazingly enough, as the chart below clearly indicates, the bad news continues: Real disposable income (adjusted for the cost of living) declined for the second straight month.
"In other words, even real incomes are now consistently declining, spending aside," Zero Hedge notes.
What does it all mean?
"[T]he US consumer is tapped out, has hit peak earnings power, and is looking at a holiday season where spending is expected to ramp up drastically with empty bank accounts and maxed out credit cards," the Hedge explains.
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