According to a recent report by the Commerce Department (and reported by the Wall Street Journal), Americans are saving more of their incomes than they have since 2006. Analysts are uncertain of just how long this trend will continue.
The Findings
Unemployment claims rose and productivity weakened in the United States while the Federal Reserve announced falling growth expectations were encouraging it to maintain a loose monetary policy.
Demand for goods and services are falling, causing households to take on less debt and retail sales to slow.
Household debt growth slowed to 2.7% on a year-over-year basis in the last three months of 2014, down 0.1 points from the previous quarter and 0.8 points from the highest point in 2014. While above the previous year’s growth of 0.6%, there was an expectation of a continued acceleration of nonfinancial debt at the end of 2014 as consumers grew more confident and used credit to make more purchases in the economy. That trend has failed to materialize.
Lest we be too quick to forget whence we came, America is now 9-months into lower gasoline prices, which started their swoon the week of June 30, 2015 from a lofty national average just under $3.70, tumbling almost every subsequent week before bottoming and bouncing from $2.02 the end of January, according to gasbuddy.com.
Continued strength in the U.S. dollar and weakness in the euro expects to benefit U.S. consumers, who can buy more with their dollar-denominated paychecks.
A slew of new reports from economists at several investment banks, including Goldman Sachs and JPMorgan, indicate that lower prices are coming to many goods categories, particularly from goods imported from Europe and Asia. One report noted that clothing, which is the most imported category by far, could see prices fall in 2015 thanks to cheaper energy costs and a stronger dollar.
The US Dollar continued appreciating over the last several months and most see this as a positive for the American economy. But, a number of prominent US CFOs, recently surveyed by Duke University, have pointed out a down side to this upturn. The increased value of the dollar is actually making it harder for US exporters, and could hamper their investment plans for the next year.
A new study by the CBO projects a smaller budget deficit thanks to lower spending on health insurance due to the Affordable Care Act, or Obamacare.
The report saw a decline in the budget deficit of $455 billion, or 13% of the total budget in 2014. Projected Federal government spending in 2015 remains uncertain, but President Obama has submitted a budget requesting $3.9 trillion in spending, or an increase of just over 10% from the prior year.
Despite poor weather that appears to have effected other February data, the US jobs report is stronger than expected. The economy grew 295k net new jobs, nearly all accounted for by the private sector (+288k).
Some of the other details were not as impressive, but should be sufficient to boost confidence that the Federal Reserve drops the “patience” from its forward guidance later this month, keeping a June rate hike on the table.
American companies and consumers are spending less even as personal income is growing in a sign that economic growth is under threat.
Several new economic indicators released on Monday indicate that U.S. economic activity is slowing because of disinflation and lowered demand. At the same time, the Bureau of Economic Analysis shows that personal income is rising. Although some economists expected a rise in incomes to coincide with a rise in spending, in reality money velocity and liquidity are in fact falling as more Americans choose to save.
A mixture of low and falling inflation combined with a rise in jobless claims may indicate the United States could follow the Eurozone down a deflationary path.
According to the Cleveland Federal Reserve, the median consumer price index rose just 0.2% in January, while the trimmed-mean CPI rose 0.1% for the same period. A drop in motor fuel, which fell at a 91.5% annualized rate in January drove the low growth, followed by a 58.5% annualized fall in fuel oil.
