Deficit up = Savings up


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Shoppers’ New Frugality Hurts Business

by Kelly Evans

Mar 3 (WSJ) — U.S. consumers increased their spending in January, while the savings rate reached its highest level in nearly 14 years amid a deepening recession.

Does that ring a bell?

The last time savings was this high was in 1995 when the deficit was also about 5% of GDP.

And the lows in savings that caused the subsequent collapse were in the late 1990’s when the government was in surplus.

The national income accounting way to say it is:

Government deficit= non government savings of financial assets.

Personal consumption rose 0.6% compared to the month before, the Commerce Department said Monday. In December, spending fell by an unrevised 1.0%, while November spending fell 0.8%.

Personal income increased at a seasonally adjusted rate of 0.4% in January, with December income falling by an unrevised 0.2%.

Incomes were supported by government increases due to CPI adjustments and the like. This is an underlying force that continuously supports nominal incomes at ever higher levels over time.

When savings rates reach desired levels and incomes are growing however modestly, spending resumes.

With more deficit spending/more savings and income on the way there is good reason to believe consumption will at least flatten and likely begin to rise.


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