SEMA eNews Vol. 12, No. 23, June 11, 2009

Pent-Up Demand? Americans' Savings Rate Highest Since 1959

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 Savings accounts and real estate investment are capturing consumers’ attention. They are the leading venues for spending.
We all know American consumers love to spend money. Even with the supposed demise of “conspicuous consumption,” buying things is still a way of life for many in the United States.

Recently, the U.S. Bureau of Economic Analysis reported that personal income increased $58.2 billion, or 0.5%, and disposable personal income (DPI) increased $121.8 billion, or 1.1%, in April.

Personal consumption expenditures (PCE) decreased $5.4 billion, or 0.1%. In March, personal income decreased $25.9 billion, or 0.2%, DPI increased $8.2 billion, or 0.1%, and PCE decreased $33.0 billion, or 0.3%, based on revised estimates. 

So where is all the money going right now? 

According to a Gallup Poll administered in April, the majority of Americans are putting their money in savings accounts and real estate. Americans' personal savings rate increased to 5.7% in April, the highest since February 1995.

The level of savings—$620.2 billion—was the most on records dating to January 1959 according to the U.S. Bureau of Economic Analysis. 

Another report, from the Commerce Department, said construction spending rose a surprising 0.8% in April. Economists had been expecting a 1.2% decline. It marked the second straight month that construction spending has risen. Before that, spending had fallen for five straight months. Private builders in April increased spending on housing projects, which hadn't happened since August. This is even more evidence that consumers are investing in their homes and other real estate.

With unemployment rising, consumers are expected to stay fairly cautious in the months ahead. Because consumer spending accounts for roughly 70 percent of overall economic activity, it's closely watched by economists.

“We aren’t about to return to a roaring economy over the next 12 to 24 months, but the painful slide into the economic abyss is coming to an end,” reports EcoTrends in the May 2009 issue.

WHAT THIS MEANS TO BUSINESS

Americans want to save money, yes, but how? Where? Traditional savings accounts are in demand and despite the burst housing bubble, they still look at real estate as a sound long-term investment. Consumer investors are walking away from risk. The huge gains that were achieved on Wall Street are now seen as a mirage, and some think they'll be much more conservative with their money going forward.

But since U.S. consumers are already going back to real estate, why should we expect them not to return to spending? Consider for a moment that the average U.S. consumer now has money in the bank in a savings account. How long will it take for consumer confidence to come back and the money that is just sitting there doing nothing will be withdrawn to satisfy the spending itch?

Speaking of consumer confidence, the Conference Board is reporting that their Confidence Index has improved three months in a row. It went up more than 10 points in April, and then jumped another 14 points in May, reaching its highest level in eight months. —SEMA Research & Information Center

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