Who Needs Uncle Sam?
In February, personal income rose to $12.96 bn, bringing the year-on-year surplus in income to 5.06%, its highest point since June 2008.
In another encouraging sign, the savings rate (as a percentage of disposable income) dropped from a six month high of 6.1% in January to 5.8%. The amount of government unemployment insurance benefits also fell by 7.81% to $113.3 bn, the lowest point since April 2009. This seems to paint a pretty bullish picture for the health of the domestic consumer, right?
First of all, the savings rate has a mixed relationship with consumer confidence. Yes, people will pull from their savings when they believe they have a promotion coming up or a new client on the horizon, but they will also pull from savings if their income is not keeping up with expenditures, and the analysis in today’s issue of The Schork Report suggests that is increasingly the case.
Further, we are seeing significant weakness in the government sector. Private industries see their income up 5.03% on the year, but government income is up just 0.24% YoY. This is a function of long term decline in state revenues. Total state revenues peaked in 2007 at $2 trillion, and in 2009 came to just $1.12 trillion according to the latest Census Bureau data.
Returning to private sector, government unemployment insurance benefits currently account for 0.87% of total income, more than double the 2005-09 average of 0.39% for February.
The bottom line is that despite lower unemployment rates and dollar-amount increases in income, a number of health indicators show that we remain in a precarious situation.
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Stephen Schork is the Editor of The Schork Reportand has more than 17 years experience in physical commodity and derivatives trading, risk systems modeling and structured commodity finance.