On savings rates and how we got here

http://www.bea.gov/briefrm/saving.htm

“Consumer spending, usually the lifeblood of the economy, slowed in the second quarter. Such spending rose at an anemic 1.6 percent pace. That was down from a 1.9 percent pace in the first quarter. It also was the weakest showing since the end of last year.

Instead, Americans saved more. They saved 6.2 percent of their disposable income in the second quarter, the highest share in a year.”

– I got this from a Yahoo News article

Am I the only one that thinks this is good? Yes, I saw the news today. GDP grew at a dismal 2.4% for the 2nd quarter. I understand that consumer spending drives the economy and both consumer confidence indexes were down markedly. A slow down or double dip is everyones fear and rightly so. With that said, how did anyone think this wasn’t going to happen?

We are coming off a time of unprecedented spending. Home ownership percentages went much higher than normal. Credit was easily obtained and very cheap. Home prices skyrocketed and people took advantage of this increase in equity to further fuel the economy. Now that the good times are over does it not surprise people that Americans are saving more, deleveraging, staying away from homes and otherwise hunkering down?

Credit is shot, interest rates have risen and floating rate mortgages are adjusting. The US consumer is not going to bail us out this time. Frankly, I feel as if this is something we are going to have to ride out. All the poking and prodding is almost irresponsible. It is also unrealistic.

Consumers can’t do it anymore. Credit standards have been tightened dramatically. Those who have credit are paying it off ASAP because of the increase rates. Others cannot keep up and are seeing their credit worthiness destroyed. Either way that amounts to people not spending.

Home ownership isn’t going to magically turn around. Banks are now back to the good ‘ol days where they verify income and require a down payment. You know, back in the day when banks acted like banks and looked for skin in the game. It would not surprise me in the least if the increase in savings rates was directly tied to banks requiring 10% down like they used to. Add to the fact that millions of people got burnt by their homes. Owning a home went from the American dream to a nightmare quick, fast and in a hurry. No surprise that people might be a little hesitant to take on the mother of all chains around the neck.

As much as we wish the consumer would spend, deep down inside I think we all understand. This time the consumer can’t bail us out. I think it is going to hurt us in the short run, but in the long run we will be better off with a normal savings rate and less debt.

Do I think another round of stimulus will do anything? Yeah, it will add to the national debt. I think thats about it. You can lead a horse to water, but you can’t make it drink. People are all spent out. Stimulus at the consumer level is done with. They will either save it or pay off debt with it.

Here is my thinking. Small business is the largest employer in this country. The majority of millionaires are the people who own these small businesses. There needs to be either a tax cut or a simplification of the taxes for these guys. Honestly, by simplifying the tax situation for small business owners you will save them so much money. It will also increase their confidence. We focus so much on consumer confidence which is mercurial at best. Small business owner confidence is much more important. Once you get these guys feeling good about things you will see things pick up.

This isn’t an easy thing and I realize it. Bank lending is still not where it needs to be to facilitate these small businesses to expand and increase hiring. The thing is we have to do something. It seems to me that every year more and more taxes and restrictions are being placed on these guys. The very people we rely on to employ Americans. I truly believe that it is the small business owner that is going to do it.

http://www.bls.gov/news.release/empsit.t04.htm

These numbers are very telling to me. Educated workers are doing just fine. These people work at F500 companies, they don’t need any help. The blue collar workers need the help. These are the people that small businesses are going to employ (in general).

Let me expand on this also. This is not something that can be solved by government hiring. We need civilian projects, manufacturing, etc. Every time I see a Reinvestment Act sign I can only think about state workers making 25 bucks an hour to hold a sign. We need small businesses to start paving parking lots, making more widgets, doing more plumbing.

http://news.newamericamedia.org/

I will end this with an interesting article. Banks aren’t lending and when want to Federal regulations are holding it up. We need to clear the beaver dam so the stream can live again.

Anthony

Tags: Anthony DeAngelis, savings rates