Longer view of savings vs disposable income
Updated below.
Cactus’ post got me thinking. And, holding true to my thought that we have changed our focus I decided to take a longer view.
First is at chart by year from 1929 to 2006 of the savings % of disposable income.
Notice the WWII years? This is the same time income from entrepreneurship was peaking. But, we don’t see the same relationship during the 90’s.
Income from interest looks similar too. As I noted in a prior post, the interest income curve followed the Fed Rate curve. The interest income peak coincides with the percentage peak of savings in the first chart. The savings % of disposable income peaks in 1982 at 11.2 and the income from interest peaks in 1981 for all 3 groups. (Note the scale range is different so that the peak for interest looks greater.)
What is most interesting, is that share of income from wages is peaking just after this for the top 5%. The 95 to 99 group at 76.4 in 1983, the to 1% at 66.1 in 1984 and the top 0.1% at 53.9 in 1984. Only the top 0.1% see an greater peak after this and it’s in 2000 at 58.2 % of their income from wages.
Income from rents and dividends decline from the mid to late 20’s until rent income starts to rise in 88/89 and dividends income changes direction in 2000.
I would say that savings is a function of income from wages (updated) and interest rates. There could be a factor related to people investing in entrepreneurship, but it is a special circumstance. That the trend for savings is down after the Reagan revolution continues to suggest to me that we have changed our thinking about how to make money.
As to Cactus’s concern about increased savings in a down turn, I looked a the individual quarters of each recession (years prior to 1947). Overall, savings goes down during the recession. When it goes up, it is an oddity. They are 1969, 1980 and 1990. The 1969 is truly odd in that the rise is a change of 1.5 where as the other two are only 0.5. And they we have 2001 with it’s one quarter that has a freakish increase followed by a death dive.
Recessions via NBER
8/1929 to 3/1933 43 months 4.5 to -1.5 (4.5, 4.1, 3.9, -0.9, -1.5 by year)
5/1937 to 6/1938 13 months 6 to 2 by year
2/1945 to 10/45 8 months 20.4 (years around the war 41 to 46: 12.2, 24.1, 25.6, 26.1, 20.4, 9.6)
11/1948 to 10/1949 11 months 8.0 down to 4.3 (8, 5.9, 4.7, 5, 4.3)
7/1953 to 5/1954 10 months 8.4 down to 7.4 (8.4, 8.4, 8.6, 7.4)
8/1957 to 4/1958 8 months 8.6 down to 8.3 (8.6, 8, 8.4, 8.3)
4/1960 to 2/1961 10 months 7 to 8 (7, 7.4, 7.1, 8)
12/1969 to 11/1970 11 months 8.5 to 9.9 (8.5, 8.4, 9.5, 10, 9.9)
11/1973 to 3/1975 16 months 11.7 to 9.8 (11.7, 11.2, 10.2, 10.1, 11, 9.8)
1/1980 to 7/1980 6 months 9.5 to 10 (9.5, 9.9, 10)
7/1981 to 11/1982 16 months 11.5 to 10 (11.5, 12.2, 11.6, 11.8, 11.4, 10)
7/1990 to 3/1991 8 months 6.9 to 7.3 (6.9, 6.9, 7.3)
3/2001 to 11/2001 8 months 1.9 to 0.5 (1.9, 1.2, 3.4, 0.5)
5/1937 to 6/1938 13 months 6 to 2 by year
2/1945 to 10/45 8 months 20.4 (years around the war 41 to 46: 12.2, 24.1, 25.6, 26.1, 20.4, 9.6)
11/1948 to 10/1949 11 months 8.0 down to 4.3 (8, 5.9, 4.7, 5, 4.3)
7/1953 to 5/1954 10 months 8.4 down to 7.4 (8.4, 8.4, 8.6, 7.4)
8/1957 to 4/1958 8 months 8.6 down to 8.3 (8.6, 8, 8.4, 8.3)
4/1960 to 2/1961 10 months 7 to 8 (7, 7.4, 7.1, 8)
12/1969 to 11/1970 11 months 8.5 to 9.9 (8.5, 8.4, 9.5, 10, 9.9)
11/1973 to 3/1975 16 months 11.7 to 9.8 (11.7, 11.2, 10.2, 10.1, 11, 9.8)
1/1980 to 7/1980 6 months 9.5 to 10 (9.5, 9.9, 10)
7/1981 to 11/1982 16 months 11.5 to 10 (11.5, 12.2, 11.6, 11.8, 11.4, 10)
7/1990 to 3/1991 8 months 6.9 to 7.3 (6.9, 6.9, 7.3)
3/2001 to 11/2001 8 months 1.9 to 0.5 (1.9, 1.2, 3.4, 0.5)
Update:
Cactus mentions GW’s worst years. It is interesting when we look at interest, rent, dividends and entrepreneurship.
For the 90 to 95 group we see their income coming from dividends (1.5 rise to 1.9) and rent (.03 rise to 1.2). Are we seeing the effects of investing in 401K’s and real estate? Interest goes down from 2.1 to 1.8% of total income.
The 95 to 99 group is the same. Dividend rise from 3.2 to 4.7 and rent from 1.8 to 2.2 with interest income declining from 3.9 to a low of 2.9.
Even the top 1% is similar. Dividend income rises from 4.2 to 6.6. Rent rises from 2.5 to 2.7 and interest declines from 5.1 to 4.8.
Income from interest is at it’s lowest in 2004 for all 3 groups.
Cactus mentions GW’s worst years. It is interesting when we look at interest, rent, dividends and entrepreneurship.
For the 90 to 95 group we see their income coming from dividends (1.5 rise to 1.9) and rent (.03 rise to 1.2). Are we seeing the effects of investing in 401K’s and real estate? Interest goes down from 2.1 to 1.8% of total income.
The 95 to 99 group is the same. Dividend rise from 3.2 to 4.7 and rent from 1.8 to 2.2 with interest income declining from 3.9 to a low of 2.9.
Even the top 1% is similar. Dividend income rises from 4.2 to 6.6. Rent rises from 2.5 to 2.7 and interest declines from 5.1 to 4.8.
Income from interest is at it’s lowest in 2004 for all 3 groups.
But, when we look at the top 0.1% we see the greatest rises here. Dividends goes from 5.2 to 10. Rents don’t rise as great as the lower 2 groups going from 2.9 to 3.1. However, interest income does the opposite of what we saw, it rises from 6.7 to 7.1. The other groups fell.
The key to the puzzle I believe is in the income from entrepreneurship and the amount of income in the top 1%. For the lowest 2 groups income from entrepreneurship rises. 5.0 to 7.4 in the 90 to 95 group, 18.9 to 21.5 in the 95 to 99 group. The top 1% has a healthy change from 26.5 to 29.1, but the top 0.1% only rises form 31.3 to 35.1. As a % change this is the smallest.
The income in 2005 for the top 1% was approximately 2.5 trillion dollars. In 2005 the top 1% has about 22% of the income, the top 0.1% has 11%. We are talking a lot of money in the top 0.1%. I think it is enough to influence savings when you consider that the 0.1% group is earning a rising percentage of income from saving type investments than from income generating investments. They are the only group with an increase in income from interest. The rest of the people, mainly the 90 to 99% group are putting their money into things that make income. That is business, income generating real estate and stocks .
Thus, what we are seeing is a trend that as income goes up (with the majority from wages for all) people put their money in to savings vehicles of less risk. The 0.1% crowd is packing it away in interest bearing stuff. Those at the lower end will try to increase their income via income generators; entrepreneurship and rents. Being that equity does not count as savings, such only shows up in rents. Entrepreneurship would not show up in the savings rate either. It appears we have a transition from trying to increase income via work through entrepreneurship and real estate to more passive income of dividends to just plain playing it safe with interest when you have income that puts you in the stratospheres (about $5.5 million per year) as oppose to the $96K entry fee to the top 10%.