In the last four months, growth in Americans’ disposable incomes has been nonexistent on an inflation adjusted (real) basis. But Americans’ real personal expenditures have increased considerably. As you can see in the chart below, after the recession (shaded area) Americans have kept their personal consumption growth steady as they replace their worn out possessions. But without growth in incomes, how can Americans afford to increase their personal consumption expenditures?
They are withdrawing it from their savings. Over the last three months Americans have withdrawn 1.1 percentage points from their savings. Today they’re only saving 3.3% of their disposable incomes. Falling savings rates usually correspond with strong economic environments. But no one is arguing that America’s economy is strong today. So what gives?
The market is distorted. The Federal Reserve policy that provides Americans with no return on their savings is distorting market forces that typically are dependable signals to the economic situation. The distortions are causing investors major losses and forcing some to give up altogether. Many are seeking guidance through the uncharted waters of the unprecedented Federal Reserve policies.