We’ve gotten used to hearing bad news about the economy, and especially about that state of the American consumer. Still, there was something extremely ominous about the U.S. Commerce Department‘s report last month that American’s personal savings dipped into negative territory, for only the third time since record-keeping began, at -0.5%.
The other two times? 1932 and 1933.
Is it further evidence of the next Great Depression? Probably not. In fact, according to a competing index of personal savings, it doesn’t even come close to being correct.
“The common notion is that there’s a negative savings rate and that the consumer is in trouble,” says Madeleine Schnapp. The director of macroeconomic research at TrimTabs took note of the government figures’ tendency to get consistently revised to seem not as bad: For instance, in the Bureau of Economic Analysis’ Jan. 30 report on personal income and outlays, the reported savings rate for October was -0.1%. Not good, but much less bad than the -0.7% the BEA initially reported for the month. September also yo-yoed, going from -0.4% on Oct. 31 to -0.8% on Dec. 1 back down to -0.5% on Jan. 30. The BEA can also be very wrong in the other direction, with August’s number starting at -0.7%, then, in the succeeding months, plummeting to -1.8%, -2.2% and finally, in the January release, to -3.4%.
Schnapp takes issue with a methodology that can lead to such enormous adjustments, noting that that BEA doesn’t usually come up with a final number for about six months, particularly since the data is collected a quarter in arrears – which means the most recent three months are an extrapolation – a lag time that’s not acceptable for making market decisions. TrimTabs thinks it has a better way.
The firm’s Savings and Investment Flow Indicator breaks with the BEA’s data source – unemployment insurance surveys, which Schnapp says leads to “grossly inaccurate” estimates of personal income – in favor of the Treasury’s daily payroll tax take, using it to create a model to determine a more accurate payroll estimate. It then does away with the BEA’s durable goods data – “a good source,” Schnapp says, with bad timing – instead of relying on flows into and out of savings vehicles, money market funds, large-denomination certificates of deposit, and long-term mutual funds, to see if “there is enough money sloshing around in the economy that’s available to invest.”
TrimTabs’ findings, which it has published weekly since the beginning of the year, indicate that there is. “There’s a healthy amount of money building up on the sidelines,” Schnapp says, and, given the elevated state of the real estate market, she argues that at least some of that money will be invested, money that, in the BEA’s analysis, doesn’t exist. Schnapp concedes that the BEA’s data indicates that “the consumer is probably not saving enough to replace social security,” but that doesn’t mean he or she doesn’t have any money to invest.
That’s the news Wall Street wants to hear.