Consumer spending fell 1 percent last month, while the savings rate rose 2.8 to 3.6 percent (see Washington Post article). Given that consumers have less revenue streams than before - employment (still for most), but less bonuses, dividends, capital gains, and home equity cash - it makes sense that they are saving what income they are receiving, just in case job losses hit their family, or the recession deepens or becomes prolonged. While the benefits of lower energy cost are helping, memories of $4 gas are also still in the minds of consumers. This of course continues to be bad news for consumer retail, and continues to help separate the wheat from the chaff as companies such as Circuit City and Linens 'n Things can no longer take the slowdown, and subsequent lack of sales and profits. I suspect that as we continue to keep hearing about how this is going to be an extended recession and even longer recovery, consumers will do their part to insure that it is indeed long as they reduce spending and save what disposable income they have. Ironically, it may be this prudent saving that helps keep the housing and stock market ATMs that consumers have depended on short of cash for quite a while.

As reported at MarketWatch, Japan is considering lowering capital gains and dividend taxes as a way to encourage savers to move funds from lower yielding investments back into the stock market. The plan would cut dividend and capital gains taxes, potentially for up to 10 years. The proposal would temporarily exempt dividend payments of up to 1 million yen ($9,100) from taxes. An earlier plan that was passed in 2003 and cut capital gains by 50% and dividends to 10% is scheduled to expire early next year. It is hoped that the move will help spur the stock market, which has languished for over a decade. Given the level of fear in the U.S. markets, cutting capital gains by 50% and reducing dividend taxes to 10% would certainly give the U.S. markets a nice jolt. Hopefully it will not take over 10 years of poor market returns to see the need and potential benefits of such a cut. Just as the U.S. is considering higher taxes, this is yet another example of how countries around the globe are looking to reduce corporate, capital gains, and dividend taxes. Hopefully we will get the message.