The US Federal Reserve released statistics about the US personal savings rate (and disposable personal incomes) that clearly point to a problem that is far from being solved. The chart below illustrates the magnitude of the collapse in incomes. While there is a recovery from the recent lows, it is amply clear that the incomes are far from what would be healthy for a sustainable recovery. The importance of the fall should be seen in the context that the personal consumption now accounts for nearly 70 percent of the GDP, while manufacturing consists of probably the remainder. It would be erronous to see the present economy with that of the previous times as during the 1980s and 1990s consumption accounted for less than 50 percent.
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A large part of the jump could be due to the jump in incomes of that could be short-term including tax cuts/refunds, rise in minimum wages and also income that accrues to the well to do due to rising asset prices (if it is actually working), which are unlikely to be sustained.
The chart below (in billions of US Dollars) clearly illustrates that the problem there seems to be no rise in personal incomes on a long-term basis. Recovery in incomes seem to far from certain as the US economy is still losing jobs (job losses in September were more than most of the forecasts). Recent reports claim that a large proprtion of people with income of about US$100,000 per annum have little savings. Nearly 70 percent of the households are living on pay-cheque to pay-cheque. More worringly, about 35% of the households that make US$100,000 are living on pay-cheque to pay-cheque. So about half of the US population can go bankrupt if they dont have income for one month.
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The charts are as on 1st October 2009.
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