U.S. Savings Rate at Highest Level in 15 Years
I have been a firm believer for a while now that the current economic mess that we find ourselves in would scare U.S. citizens into doing something that they should have been doing all along...saving money. Fresh evidence of this trend of increased consumer saving was published this morning.
The U.S. personal saving rate, which actually fell slightly below zero during the obscene credit bubble, increased to 6.9% last month. This is its highest level in 15 years. Of course, as the paradox of thrift states, it's terrible for the economy in the short run if everyone starts saving more money at the same time. Having said this, in the long run I believe that this increased rate of savings is a very good thing for America.
I think that we will experience a secular shift in the way that Americans look at money, in which the personal savings rate will eventually approach or possibly exceed 9% and stay at that level for some time. Some economists believe that the U.S. savings rate will soar to 10% or 11%. Needless to say, if this comes to pass it will serve as yet another headwind for U.S. economic growth over the next several years.
So who benefits from this trend? It certainly won't be companies in the consumer discretionary sector. I'm staying far away from those. Banks are definitely one of the beneficiaries of this trend. Deposits are a cheap source of funds for them. Bank deposits increased 1.7% in May. That is the ninth largest single month increase since 1973. Of course, banks' balance sheets are so messed up right now with all of those toxic assets floating around that I doubt that even this trend can help them.
U.S. Savings Rate at Highest Point in 15 Years