♠ Posted by Emmanuel in Cheneynomics,Credit Crisis
at 6/26/2009 05:17:00 PM
I was puzzled by the blogs of the New York Times and the Atlantic trumpeting improvements in the US personal saving rate. Both have neglected to mention the rather important fact that disposable personal income--the denominator value in computing this rate--has been grossly distorted by ongoing initiatives related to the stimulus package. When these distortions are removed, we are likely to get a clearer picture of the situation. In the meantime, let me explain what's going on.Stock markets are rather underwhelmed by the latest data on US personal income and personal spending. Sure, the headline numbers look impressive, with the personal saving rate for May coming in at 6.9% as opposed to an already impressive 5.6% the month before. However, the $787 stimulus bill formally known as the American Recovery and Reinvestment Act of 2009 is providing Americans with a dubious and temporary windfall largely at government's expense. On the giveaway side, it's largely down to one-time checks of $250 provided to Social Security recipients. On the takeaway side, payroll tax relief is lessening the government's take in a bid to boost consumption. While personal spending did go up by 0.3%, personal income went up by 1.4%.
What you have here, then, is largely a mirage--and an unsuccessful one at that. Stock markets are unhappy with personal income fattened up by government checks and reduced payroll taxes not translating into consumer spending--still the bedrock of the US economy. The summary of the monthly data is instructive:
Personal income increased $167.1 billion, or 1.4 percent, and disposable personal income (DPI) increased $178.1 billion, or 1.6 percent, in May, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $25.1 billion, or 0.3 percent. In April, personal income increased $78.3 billion, or 0.7 percent, DPI increased $140.0 billion, or 1.3 percent, and PCE increased $1.0 billion, or less than 0.1 percent, based on revised estimates. The pattern of changes in personal income and in DPI reflect, in part, the pattern of increased government social benefit payments associated with the American Recovery and Reinvestment Act of 2009.The shaky foundations of this "recovery" in American savings become apparent after searching just a little:
Personal current transfer receipts increased [by an annualized] $162.6 billion in May, compared with an increase of $59.1 billion in April. The American Recovery and Reinvestment Act of 2009 provides for one-time payments of $250 to eligible individuals receiving social security, supplemental security income, veterans benefits, and railroad retirement benefits. These benefits boosted the level of personal current transfer receipts by $157.6 billion at an annual rate in May. These payments are classified in “other” personal current transfer receipts rather than in old-age, survivors, disability, and health insurance benefits because they are not benefits paid from the social security trust fund.In simple words, the April data was already fattened with stimulus checks, and more so the May data. Absent these handouts, incomes would have increased by only 0.2% instead of 1.4%. Remember that these are one-shot deals. Unless Obama intends to shepherd through another round of stimulus packages featuring similar disbursements in FY 2009, we aren't likely to see a continuation of this trend. Returning to non-stimulus reality land, private sector salaries and wages fell by 0.2%. (These also fell for workers as a whole.) With further layoffs in store, it should become plenty evident that the emperor has no clothes aside from these stimulus package rags.
The buck is simply passing to Uncle Sam from Joe Average in the debt accumulation sweepstakes for no net improvement in overall (public and private) savings. Worse, the desired effect of encouraging consumer activity appears to be underwhelming. There is little bang for the buck here, and those savings rates are as juiced as your average WWE pro wrestler.
Obama, bring on your next gargantuan stimulus package that has no real effect other than piling more debt on the world's largest debtor nation. The American taxpayer, this ($787B) dud's for you.
