Let’s start with a table and statements from the BEA’s Personal Income and Outlays report.
Personal Income and Outlays
Details
- Current disposable income rose 12.9% to $18.66 trillion.
- Current PCE fell 13.6% to $12.51 trillion.
- Savings = $18.66 Trillion – $12.51 trillion = $6.15 trillion
The personal saving rate is savings as a percentage of disposable personal income.
Savings Rate = ($6.15 / $18.66) * 100 = 33.0%
Cobid-19 Disclaimer
“The full economic effects of the
COVID-19 pandemic cannot be quantified in the personal income and outlays estimate for April because the impacts are generally embedded in source data and cannot be separately identified.”
Eight Things Impacting Savings
- Stimulus checks
- Forbearance Plans
- BEA Disclaimer and Imputations
- Work-From-Home
- Stores Closed
- Price Drops
- Deferred Medical Spending
- No Vacations
Income Surges as Spending Drops Most on Record
Let’s fill in additional details, some from my report earlier today Income Surges as Spending Drops Most on Record
1: Stimulus Checks: The government sent stimulus checks for $1,200. These are a one time play and the effect will roll off. Check distribution was uneven. People received a check if they were below a certain income level whether or not they lost any income to Covid-19.
2: Forbearance Plans: Credit card companies, auto loan companies, rent companies, and mortgage companies all allowed consumers the right to skip payments if they requested. These amount will have to be made up later.
3: BEA Disclaimer: The BEA admits “impacts are generally embedded in source data and cannot be separately identified.” That pertains to points one and two but there are also mortgage imputations as explained below.
4: Work-From-Home: Those working from home are not buying as much gasoline or eating out for lunch.
5: Stores Closed: Restaurants, bars, and general merchandise stores are closed. Services such as barbers and beauty salons are also closed.
6: Price Drops: Prices generally moved lower. Gasoline, plane tickets, and rental cars are standouts. Also some insurance companies voluntarily dropped rates as people are driving less.
7: Deferred Medical Spending: Elective medical and dental procedures were halted.
8: No Vacations: Obvious impacts on hotels, air travel, call rentals, restaurants.
Rent vs Mortgages
How did Mortgages Impact the Savings Rate?
Mortgage forbearance plans differ from credit cards, auto loans, and rent skip-a-pay plans.
The BLS article CE and the PCE Comparison explains:
In CE publications, owner-occupied shelter
expenditures are defined to include mortgage interest and charges, property taxes, maintenance and repairs, insurance, and other related costs.In contrast, the BEA defines the value of owner-occupied shelter for PCE as space rent, which excludes charges for utilities, major appliances, furniture, and furnishings.
The BEA has this blurb on the PCE Price Index which also ties back to the CPI.
The PCE market-based price index excludes most imputed expenditures, such as “financial services furnished without payment,” for which deflators are implicit, based on independent current dollar and chained-dollar estimates.
However, it includes “imputed rental of owner-occupied nonfarm housing,” which is deflated by the CPI for owner’s equivalent rent, so that the index will be comparable with the overall CPI.
These articles imply that the BEA considers the imputed Owners’ Equivalent Rent (OER) as a PCE expense but not the rest of the mortgage payment which is a capital expense and thus savings.
If so, the amusing result is that the capital expense portion of the mortgage, whether skipped or paid, contributes to savings.
However, the OER portion of the mortgage payment distorted savings upward (as did skipped rent, auto loan, credit card, and skipped payments in general).
In Regards to Point 3
Panic Sets In
Please recall Panic Sets In: Fed Promotes More Free Money
The Fed seldom mentions actions that Congress needs to take. Yet, we have back-to-back messages from Powell and Kashkari on the need for free more free money from Congress.
The Fed is very worried about skipped payments and the stock market both.
At Least for a While, It Pays Better to Be Unemployed
In regards to stimulus checks, At Least for a While, It Pays Better to Be Unemployed.
Results will vary greatly.
Rebound
A spending rebound is coming up, but it will not take things back to what they were before Covid-19 hit.
Mish
Added Point 8 and a Tweet regarding Point 3
As mentioned above, you also need to add reduced childcare expenses. given that many people are at home and most childcare centers are closed. Childcare is insanely expensive.
“Forbearance Plans”
…
The fact that Black Knight keeps track of mortgage forbearance makes me leery … will forbearance potentially end up on your credit report?
If I had the capacity to pay, I would.
You are correct. Forbearance is a black mark.
I heard a mortgage expert on the radio a few days ago talking about the extraordinary low fixed mortgage rates available for those who want to refinance. Rate can be lowered from 4.5% to 2.5%, 30 year fixed, and one can pay off a mortgage in in 15 years if one takes the new 30 year amortization and continues making the old payments. It’s like free money for those who kept their payments current. One of the requirements to get this deal is that no forbearance was taken. If forbearance was taken, then one must bring payments current and keep them current for 12 months to be eligible. A lot can happen in the mortgage market in 12 months. Those who took forbearance are likely locked out.
Keeping my 2019 federal and state tax monies owed until July 15th….
Spring break also didn’t happen witch can skew the data for March and April. That’s 3-6k for any family going on vacation. The tourism sector was the most affected so that might be one of the biggest.
Large purchase sales are down. Cars, boats, housing, furniture purchases have been postponed.
You could most likely read the most decline chart backwards to see where the savings has came from.
Here is another one
6: Price Drops: Prices generally moved lower. Gasoline, plane tickets, and rental cars are standouts. Also some insurance companies voluntarily dropped rates as people are driving less.
Added the obvious
4: Work-From-Home: Those working from home are not buying as much gasoline or eating out for lunch.
5: Stores Closed: Restaurants, bars, and general merchandise stores are closed. Services such as barbers and beauty salons are also closed.
The FED is already on the case, and will respond accordingly. This travesty won’t be allowed to stand.
Excellent point about work-from-home – will add it
Ubereats, etc recorded record revenues. Those services are not cheap and should serve as a subtraction.
With regards to work from home (and closed childcare facilities), don’t forget reduced childcare expenses (which is very expensive).
Good one. Most have not put this in the equation. the childcare sit is a total mess
save? at the ridiculous savings rate? why bother?
450 bucks back to work bonus will pad some people’s account, but not enough since for quite a few people, there won’t be a job to go back to.