It made so much sense.
With the job picture getting darker, U.S. households started to cut back on the amount they spent. In August, they were so frugal that they hoarded the refund cheques they had received from the government. After a very long spending spree, U.S. consumers had apparently rediscovered saving.
And then October came along and they changed their minds again.
Today the U.S. Commerce Department told us that consumer spending rose by 2.9 per cent in the month of October. That more than reverses September's 1.7-per-cent dip. The rise in spending is despite the fact that personal incomes were unchanged during the month. The net result is that the U.S. savings rate plunged from 4.6 per cent in September to 0.2 per cent in October. That's an all-time low.
Yes, there are some special factors at work.
From the U.S. retail sales numbers, we already knew that September's decline in sales was reversed in October. And from the recent employment numbers, we knew that there was not going to be a lot of strength in the incomes. Even so, Monday's data is still stronger than the market had expected to see. The consensus estimate was for a 2.3-per-cent gain in employment and a rise of 0.1 per cent in income.
As for the personal savings rate, that one is frankly disappointing.
The U.S. savings rate has made headlines over the past couple of years. It has been on a long downtrend, and until this summer was languishing around the 1-per-cent level. From July on it started to move up as consumers got cautious, culminating in a 4.6-per-cent level in September. That of course was artificially high, one more byproduct of the Sept. 11 tragedy. Even so, a correction to 0.2 per cent is way too much.
If you want to take the optimistic view of things, you could say that October marked a patriotic spending spree by financially stable U.S. households. However, given that U.S. consumer debt is not at an all-time high of 15.6 per cent of gross domestic product, that may be way too sunny an analysis.
The acid test comes on Friday. If the market consensus is right and another 200,000 plus jobs were eliminated in November, October's rush to the stores may start to look like a very bad move.
Stay tuned.