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Household Savings Rate

U.S. Data Show Major Changes in Savings and Spending

Written by Brian Hicks
Posted February 2, 2009

It's no longer wimpy to save, and it may not be so cool to spend.

At least that's the story several new sets of data tell as the market meltdown continues to change our economic attitudes.

The U.S. household savings rate rose to 3.6% in December. That pales in comparison to the Eurozone's 14.4%, or the wider European Union's 10.7%...

But consider we just hit bottom around three years ago. Below bottom, actually—the U.S. savings rate dipped to a jawdropping -0.5% for the whole year of 2005.

"Americans seem to have the feeling that it is wimpish to save," one S&P economist said when the 2005 numbers came out.

Spending Slumps as Savings Rise

The sub-zero drop in savings was a historical absurdity.

Only in 1932 and 1933—the height of the Depression—had Americans held on to less money. That was because what little loot they had, they spent on bare necessities. The consumer boom of the early 2000s was fueled not by desperation but by a culture of "stuff."

That stuff, junk, future eBay fodder... gobbled up income here, while Chinese citizens were saving at a 40% rate.

Treasury Secretary Timothy Geithner is in some international political hot water for saying that Chinese consumers need to pick up the slack by buying more of the consumer goods they used to sell mainly to U.S. customers. He also accuses China of engaging in currency manipulation, though the yuan has risen by 20% against the dollar since Beijing loosened its exchange rate peg in 2005.

Geithner may be right, but he would do better to focus on restoring consumer confidence inside his own country.


The Upside to the Downside

Our domestic imbalance is now correcting, and "stuff" stocks are suffering. Consumer confidence hit a new historic low in January—only 6.7% of households surveyed think business conditions in America are positive. But it's healthy for us to hold on to more money, as that has traditionally been the primary source of investment funds for individuals.

And those investors who are sitting on more of their earnings are actually in the best position to profit, if they know how to play crossing consumer goods and savings trends right now...

Big-ticket durable goods orders just dropped for a fifth consecutive month and are expected to suffer through a 3-year drought. Consumer goods have also taken a nose-dive, leading to big gains for investors in the ProShares UltraShort Consumer Goods ETF (NYSE:SZK). Check out the chart below, comparing the Dow's dismal past year to SZK as an inverse play:

ProShares UltraShort Consumer Goods

Some big names in consumer goods have bitten the dust lately. Expansive Circuit City and Linens 'n' Things parking lots are about to empty out, and few stores are likely to step up as anchor tenants in the malls where those defunct companies were long-dominant retail magnets.

Corporate rental prices are coming down as potential tenants go under, and rent-to-own programs are now popping up across the country.

Dallas-Fort Worth, for just one example, now has an office space vacancy rate of over 20%.

The UltraShort Dow Jones U.S. Real Estate Index ETF (NYSE:SRS) should benefit from continued weakness in both residential and commercial real estate, so that ETF is a good place to make your savings productive.

What do you think about the trends we're seeing in ownership and savings? Let us know in the comments below.


Sam Hopkins

International Editor

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