Tuesday, September 29, 2009

Pimco’s Clarida Says U.S. Savings Rate May Exceed 8%

By Thomas Keene and Susanne Walker, Bloomberg

Sept. 28 (Bloomberg) -- Pacific Investment Management Co. strategic adviser Richard Clarida said the U.S. savings rate may exceed 8 percent, hurting consumer spending and weighing on the economic recovery.

“I’m in the glass is half empty camp,” Clarida said during an interview in New York on Bloomberg radio. “Traditionally the consumer comes to the rescue of economic recoveries. We’ll see a more subdued consumer.”

Americans took on less debt to repair tattered balance sheets, pushing the savings rate up to 6 percent of disposable income in May, the highest level since 1998. It last exceeded 8 percent in December 1992. Consumer spending accounts for more than 70 percent of U.S. economic activity.

Only 8 percent of U.S. adults plan to increase household spending, almost one-third will spend less, and 58 percent expect to “stay the course,” a Bloomberg News poll showed Sept. 17. More than three in four adults said they reduced spending in the past year, the poll showed.

Officials at Newport Beach, California-based Pimco, the world’s largest bond fund manager, have forecast a “new normal” in the global economy that will include heightened government regulation, lower consumption and slower growth.

Slower Growth

“Economic growth will be choppy,” Clarida said. “We see the economy recovering. There will be some quarters above two percent, and others below.”

The world’s largest economy shrank at a 1.2 percent annual rate from April to June, more than the originally reported 1 percent contraction, according to a Bloomberg News survey before the Commerce Department’s Sept. 30 report. The jobless rate climbed to 9.8 percent this month, from 9.7 percent in August, according to a separate Bloomberg survey before the Labor Department reports figures on Oct. 2.

“At some point as unemployment declines, the Fed will need to renormalize rates,” Clarida said. “It’s too soon to tell the pace at which they will renormalize. I don’t think there will be a Fed hike until late 2010 or 2011.”

The Fed cut its target for overnight lending between banks to a record-low range of zero to 0.25 percent in December.

Traders bet there’s a 72 percent chance the central bank will raise its target rate by April, based on futures data compiled by Bloomberg.

To contact the reporter on this story: Susanne Walker in New York atswalker33@bloomberg.net

Last Updated: September 28, 2009 12:16 EDT