Friday, March 27, 2009

The cure is not worse than the illness

Today the Bureau of Economic Analysis released last months personal savings rate for the nation. 4.2% is the figure after 4.4% in January. The last time we saw back to back months over 4% was in 1998. In the post WWII years until the early 1980's the national savings rate remained steady near 10%. It then declined steadily until reaching negative levels earlier this decade. A decrease in savings is the corollary of an increase in spending and drove the portion of GDP fueled by consumption to above 70%. Increased saving (decreased consumption) will provide a steady headwind on GDP growth powered by consumption and will account for a long term decrease in growth rates in the United States.

It is what needs to be done, but no one says it is going to be easy.

The financial background of investing is shifting and will continue to do so.

John Barnyak