Posted by Marcelo Perez

According to the Bureau of Economic Analysis and its monthly report on Personal Income and Outlays, in the last month, US consumers have become more proactive; saving alot, earning more, spending some, and wasting less. After adjusting for a 0.2% increase in prices, real consumer spending actually increased 0.4% for the month of January, the largest increase since November 2007 and only the second increase in the past eight months. The number was above estimates, doubling economists’ expectations. Nominal personal incomes also rose, by 0.4% in January, while real disposable income, after-tax income adjusted for inflation, rose 0.4%.

Today’s report clearly calls into question the worsening credit crisis and the resulting consumer pullback in the 4th quarter. Is the decline in consumption a direct result of diminished demand caused by a downward-spiraling economy, or is this mostly an issue of confidence?  Spending, although weak, was still up in January, in the midst of the crisis. Heck, January was whispered to be worse than the last month!

Although things may not be great, just think of the effects that fear can have. Fear is a powerful motivator, and coupled with a pessimistic President, an over-zealous government, and with consumer confidence are at all-time lows, and it may bring a market or economy to its knees faster than anything would. It’s what dominates our economic landscape right now; the fear of the unknown, fear of losing one’s job, fear of inaction or too much action; paralyzing our minds and the markets alike.

With income rising faster than spending, the personal savings rate rose to 5.0% in January, the highest since 1995:

Via MarketWatch:

At an annual rate, personal savings rose to a record $545.5 billion.

And the savings rate could go even higher, with consumers trying to pay down their debts, live within their means and boost their savings to make up for their lost wealth.

The foundation of every successful economy begins with savings. A high national savings rate, not absurdly-low interest rates or an enormous money supply, is essential for long-term economic growth, as it results in increased investment. It’s good to see that there is a silver lining to this mess. Hopefully, the increased savings is a permanent trend, and not just a temporary phenomenon.

Read the Full Report.

Weekly Economic Calendar