Is the growth of standards of personal savings in the past year, a sign of a new reduction in consumer spending, and whether the paradox of savings, lead to a further weakening of the economy? This paradox is based on Keynes’s famous observation that the growth of personal savings, perhaps, is a positive factor, however, if during a recession consumers all the time trying to put off for a rainy day, more money, starts the process of reducing the costs of production and income that increases the duration of the economic downturn. A perfect storm for consumers has not yet ended, so the economy continues to be threatened by cyclical risks. Yet, in our view, a new decline in consumer spending is unlikely to happen, in fact, already eychas we are seeing short-term recovery of the costs by encouraging the purchase of new cars for the money received for the old car. A reconstruction of the economy should lead to a moderate increase in expenditure next year.

However, the increase in spending in 2010 and beyond is likely to be sluggish, as the coming dramatic change in the behavior of consumers, the main element of which will be striving to save. Aggressive rejection of households from borrowing and the gradual stabilization of the situation over the next few years will ensure that costs will rise slowly proceeds. As a result, the rate of personal savings during that period is likely to grow to 7-10%. Such long-term increase, of course, is a positive factor, but the time is set very badly. The increase will not be as significant to or faster to ensure funding for the huge U.S. budget deficit. And reduced consumer spending United States is hardly offset by a more substantial overall growth in consumption abroad, which will soon be enough to ensure the restoration of equilibrium in the global economy.

Do not pay too much attention to short-term factors. Short-term changes in savings rates, measured in terms of national income and product – a poor indicator of consumer behavior – the data can be distorted and, consequently, are subject to significant changes. Pokzaateli over the past 18 months are clear podvterzhdeniem: the impact of recession on revenues and expenditures, as well as multiple changes in tax rates and transformation approach to the problems caused by economic recession, defined the bumpy road to savings. However, after adjustment for these policy changes, the recent increase in savings rate seems to be incompatible with the assumption that the denial of consumer debt leads to a drastic change in consumer behavior. For example, a refund of taxes in 2008 resulted in an increase in savings rate to over 4% in May of that year, however, after adjustment for these returns (using the calculations of the Bureau of Economic Analysis, and all other things being equal), savings rate fell below zero because consumers do not want to part with their traditional way of life. The situation changed last summer, when the decline in property prices and growing credit crisis triggered a decrease in consumer spending that exceeds the rate of decline in income. In the first five months of 2009, excluding one-time impact of social benefits and additional income, measured rate of personal savings rose to 150 bp When adjusting to account for these factors, the final settlement in 2008, as well as cuts in taxes and transfers within the framework of the 2009 package of incentives, savings rate, as a whole, this year has remained stable and amounted to 4%. In the next few months, the measured savings rate is likely to temporarily drop to 4% on the background of the gradual recovery of consumption and self-destruction of some temporary factors.

In order to evaluate the fundamental changes in consumer behavior, without regard to temporary factors, a commonly used model in which the recorded data on the impact of economic indicators. These models are inherently inaccurate, and the backlog of causal factors it is difficult to assess. Yet, according to the best of them, loss of household in the amount of approximately $ 14 billion, compared with the maximum level of wealth, made two years ago, may have contributed to an increase in savings rates over the past year at 3-4 PM to about 4% – roughly in line with our adjusted saving rates. This is the main reason that tax cuts were not spent in full. The process of rejection of consumer loans, apparently, is in accordance with the schedule, although still located in the very beginning. Household debt service ratio, ie Household interest payments and principal amount of debt in relation to disposable income in the 1 st quarter of this year fell by 75 bp and amounted to 13.5% compared to the two-year maximum, and consumer loans continued to decline. In May, the volume of lending fell by 1.8% over the previous year, a record decline since the economic downturn of 1991.

But the process of non-borrowed funds has only just begun. It depends on the rate of economic growth, house prices and interest rates. It is estimated that by the beginning of 2011, debt service relative to disposable income could decline by another 200 bp and reach 11.5% – this is the basic prediction of the pace of non-borrowed funds. This is consistent with the reduction of debt to income, which is 80-100%, 25-30 PM Consumers will begin to slowly adjust the allocation of its resources, adapting to new conditions, only when they reconcile with the need to rebuild their balance sheets and make more savings. Of course, part of the savings regime is voluntary, but do not forget the growing tendency to deprive the rights of foreclosure on the mortgage – this leads to cancellation of loans and is a fairly painful procedure. Growth rate of credit losses and the impact of this process in the economy are likely to become a major factor in determining the final result.

Cyclical risks exacerbate the impact of non-borrowed funds to the consumer: Employment and earnings continue to decline. A weak employment report for June will not be the last, as evidenced by an increase in the number of repeated applications for unemployment benefits. For example, the rate of open vacancies of private companies has increased in May this year, according to our index of business conditions, the company also increased the planned number of new jobs. Nonetheless, housing prices continue to fall, and the recent ending of the moratorium on the deprivation of the right to redeem the mortgage (in force since February this year) can lead to an increase of free housing (although in California the 90-day moratorium came into force on 14 June). The situation with the availability of credit is improving, albeit rather slowly. Automotive in May to raise the average rate of “credit value” to its previous range of 90%. With respect to mortgage loans, the initial payment is much higher than three or four years ago, reflecting the expectation of further decline in housing prices. Increased energy prices fell sharply, but it has already led to a reduction in discretionary income this spring for approximately $ 50 billion Refinancing mortgage could resume if the decline in interest rates will continue, but the latter as expected by all to the purchasing power was significantly lower than forecasts.

The yield on the U.S. government. Bonds is in the range. Against this backdrop, we expect the yield on the U.S. government. bonds will keep the area from 3% to 3.75%, although by the end of the year could increase to 4% or slightly more. New weakening economy and the consequent decline of interest in risky assets could lead to a reduction in yield for the state. U.S. bonds, especially when reducing inflation fears. However, the increase in yield on 10-year bonds at 70 bp and lowering the point of break-even inflation rate by 50 bp, may reduce the likelihood of this scenario. Upcoming changes in fiscal policy is likely to only exacerbate the uncertainty. New weakening economy would lead to a new debate on the need for additional measures of financial incentives, while improving the economic situation, cut them on the vine.