Executive Summary
The constant downtrend in the US personal savings rate implies lower capital available for investments somewhere down the line, and a booming economy in the near term. Consumers are optimistic about their current financial condition. In conclusion, stay invested in the S&P 500 and NASDAQ 100, but stay away from defensive, utilities, and staples stocks; additionally, buy some consumer-driven stocks.
Why Should Investors and Traders Care About This Coincident Indicator!
The personal savings report is a coincident economic indicator that monitors how much consumers are left with after all expenses such as taxes and personal expenditures. Disposable income and personal outlays are the key drivers of personal savings rate; disposable income is consumers' income after taxes, and personal outlays are what consumers choose to spend on with their disposable income. A country's domestic savings rate reflects its ability to fund its investments without international funding; therefore, the higher the domestic savings rate the higher the capital available for investment in the economy. The direction of the savings rate reflects consumers’ confidence about their current to near-term financial conditions. By the end of this investment report, investors and traders should be able to make an informed investment decision to improve their investment portfolio.
Key Points
US personal savings rate just hit its lowest rate since Oct '22 ― 3%. In Mar '24, the US personal savings rate was 3.2%, just a few percentages lower than the previous month ― 3.6%. Personal outlays grew faster than disposable income in Jan, Feb, and Mar '24. Twelve months ago, the US personal savings was 5.2%. The downtrend in the US personal savings rate began in May '23.
Investment Analysis
In March, US consumers spent faster than they earned causing a decline in the savings rate; this implies that consumers are somewhat optimistic about their current and near-term personal finances. Such a rapid pace in spending is boosting short-term economic growth, contributing to the expenditures of goods and services which comprise 69% of the US GDP. On the other hand, this also means less capital available for businesses to invest in expansion, innovation, and job creation, potentially leading to an economic slowdown somewhere along the way. There is no reason to worry about a recession right now as history shows that the unemployment rate needs to tick higher to trigger a recession, a hike in the savings rate alone will not cause one. In conclusion, we recommend taking advantage of consumer-driven stocks and staying invested in the S&P 500 and NASDAQ 100.
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