Consumers Save Less, Social Security Gets an Increase, and Car Prices are Falling

I am amazed.  The consumer continues to save less and spend more.  Just as the economy seems to be doing better, people refuse to save more money away like they should.  In fact many people are spending their earnings from the stock market as of late.  I guess it is purely a mathematical equation because by definition less savings means more spending.   Some economist think this increase in spending will drive inflation higher.  I’m skeptical of this given the acceleration of automation and the potential effects on employment in the coming years.

Consumers Are Spending More & Saving Less

Consumer Behavior Recent government data reveals that Americans have been supporting their spending with their savings. The increase in spending is also recognized by economists as a sign of optimism and consumer confidence.

Commerce Department data show that consumers have been spending more, as measured by the Personal Consumption Expenditures (PCE), and saving less, as measured by the savings rate, which fell to a ten-year low of 3.1% in September. Integral components of consumer expenditures include income, credit and savings, basically where we get the money we spend. Every month, the Bureau of Labor Statistics tracks various data such as how much we spend, reported as Personal Consumption Expenditures (PCE), and how much we save, represented by the savings rate. For many Americans that save diligently, using credit to spend is usually a last resort. So, for those consumers, spending from savings occurs before tapping a credit card.

The most recent data show that consumers, as measured by the PCE, have been spending more over the past year. The concern is that consumers are concurrently saving less, meaning that savings are starting to go towards expenditures. Economists view this dynamic as a possible rise in prices and inflationary pressures where current income may not be keeping up with rising inflation. Continued job and wealth gains have inspired consumers to spend more confidently. Another notable data set, tracked by the Federal Reserve, is household net worth, which revealed an increase in its most recent release, adding to consumer confidence. Source: BLS, Federal Reserve Bank of St. Louis

Social Security Payments Increasing By 2% – Retirement Planning

Social Security recipients are due to receive the largest increase in benefits in six years. But for many recipients, the increase in payments will go towards higher Medicare costs. The Social Security Administration announced a 2% increase in benefit payments effective in late December 2017 for disability beneficiaries and in January 2018 for retired beneficiaries.

 

 

The 2% increase is the largest increase since a 3.6% increase in 2012. Many are concerned that the 2% increase may not cover expenses that are rising at a faster rate, including other essential items such as food and housing. The latest increase also affects the premiums for Medicare Part B, which covers doctor visits and outpatient care. Medicare premiums are expected to increase at the beginning of the year, minimizing net increases in Social Security payments.

The establishment of Social Security occurred on August 14, 1935, when President Roosevelt signed the Social Security Act into law. Since then, Social Security has provided millions of Americans with benefit payments. The payments are subject to automatic increases based on inflation, also known as cost-of-living adjustments or COLAs which have been in effect since 1975.

Over the years, recipients have received varying increases depending on the inflation rate. With low current inflation levels, increases in benefit payments have been subdued relative to years with higher inflation. The COLA adjustment for 2018 is 2.0%, a steep increase from the 2017 adjustment of only 0.3%. As of October 2017, over 66.7 million Americans currently receive Social Security benefit payments, with 46.3 million aged 65 or older. The Social Security Administration estimates that Americans will receive over $931 billion in Social Security benefit payments in 2017.

Over the decades, Americans have become increasingly dependant on Social Security payments, however, for some Americans it may not be enough to rely on Social Security alone. Unfortunately, Social Security is a major source of income for many of the elderly, where nine out of ten retirees 65 years of age and older receive benefit payments representing an average of 41% of their income.

Over the years, Social Security benefits have come under more pressure due to the fact that retirees are living longer. In 1940, the life expectancy of a 65-year old was 14 years, today it’s about 20 years. By 2036, there will be almost twice as many older Americans eligible for benefits as today, from 41.9 million to 78.1 million. There are currently 2.9 workers for each Social Security beneficiary, by 2036 there will be 2.1 workers for every beneficiary. Source: Social Security Administration

Car Prices are Falling

Seven consecutive years of increasing U.S. auto sales have put a glut of vehicles on U.S. highways. In addition, a significant number of those sales were with a lease, leading to a rising tide of cars flowing back into the market as lease terms expired.

As automakers have added manufacturing capacity, they have also been aggressive in offering larger incentives on new vehicles in order to maintain record sales momentum. That has put downward pressure on the entire market.  Consequently, the number of drivers that owe more on their cars than they’re worth is surging. Americans are paying on 108 million auto loans currently, according to the most recent Federal Reserve data. That represents roughly half of all licensed drivers in the U.S. Among those that carry loan balances, the Federal Reserve says auto loans make up between 10 percent and 23 percent of their total financial obligations.  The average used car lost 17 percent of its value in the past 12 months, dropping from $18,400 to $15,300, according to data from Black Book, an auto analytics company. That annual depreciation figure has also been increasing steadily, with the average used car today depreciating nearly twice as fast as it did in 2014, when the annual rate was just 9.5 percent.

Sources: Black Book, Federal Reserve

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