Spooked consumers are saving …

Savings rate compared to personal consumption rate, 2002 to 2012, % annual change

The growth in job creation has all but flatlined, while the expanding labour force has pushed unemployment rate up and fully 80% of Americans have directly experienced unemployment or known someone who has been unemployed during The Great Recession, and the canaries in the coal mind are sending signals we’d best not ignore.

The chart above shows the rate of personal savings (PSAVERT_CH1, black line) compared to consumption (aka, “spending”, PCE_PC1, blue line), both expressed as percentage change from one year ago, during the period December 2002 to December 2012. Let’s look at this as two distinct periods, pre and post Great Recession.

For the period before The Great Recession the personal savings rate averaged -0.2% while consumption averaged 5.6%. This is key as its well documented that the bulk – some suggest as much as 70% – of US GDP is driven by consumption. During The Great Recession Americans, clearly spooked by the deteriorating economy, started to save, hitting a peak of 6.1% in May, 2008. After The Great Recession we see a much lower rate of saving, an average of -0.5% across the term, while consumption has averaged 3.3%. However there was a brief period of financial sanity – from June 2010 to February 2011 Americans started to save once again, with an average rate of 1.1% observed, however they quickly returned to their profligate ways

But in Q4 2012 the savings rate has suddenly and inexplicably turned positive, hitting a peak of 3.1% in December 2012. Bad news for a consumption driven economy, to be sure, but whats going on?

Joblessness is still a problem, however its one that Washington seems oblivious to. Unemployment is something that Americans are keenly aware of, can the increased savings rate signal a yet-unreported increase in joblessness?

Meanshile Q4 GDP reported fell while China has now surpassed America as world’s biggest trading nation and Okun’s Rule suggests unemployment will being to trend up in 2013.

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