The good news that people are indeed saving more of what income they do have. The bad news is that company’s inventories are rising relative to their sales and that points to a continued sluggish economy. However the savings rate remains in a downtrend and the trap here is that consumers start to feel rich again from a rising stock market and go on a shopping spree. We need that savings rate to get to 1980-like levels.
clipped from www.financialsense.com
As a result, almost everyone is saving more as shown in the chart below. When consumers save more, they spend less. Less spending, means fewer goods and services being bought, lowering the growth of the economy. Longer term, this is good, as the higher savings rates will create more capital for investment. It could even help to offset some of the massive borrowing by the federal government.
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Not surprisingly, with lower spending many companies are experience a rapid drop in sales. When sales fall, their supply chains need to readjust to reflect the falling level of sales. This tends to cause inventories to rise. The sales to inventory ratio is an excellent indictor of the level of sales compared to goods available for sale.
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