Saturday, May 16, 2009

Saving Rate Reaches 10 Year High. Good or Bad?

The personal saving rate for Americans reached a ten-year high of 4.2% in the first quarter of 2009, the highest level since 1998 (see chart above), according to the BEA (data here).

From the NY Times:

The economic downturn is forcing a return to a culture of thrift that many economists say could last well beyond the inevitable recovery. This is not because Americans have suddenly become more financially virtuous or have learned the error of their free-spending ways. Instead, these experts say, Americans may have no choice but to continue pinching pennies.

This shift back to thrift may seem to be a healthy change for a consumer class known for spending more than it earns, but there is a downside: American businesses have become so dependent on consumer spending that any pullback sends ripples through the economy.

Fearful of job losses and anxious over housing and stock declines, Americans are squirreling away more of their paychecks than they were before the recession. In the last year, the savings rate — the percentage of after-tax income that people do not spend — has risen to above 4%, from virtually zero.


4 Comments:

At 5/16/2009 8:49 AM, Blogger Jeff Herron said...

http://mises.org/story/3449

An excellent article by Hoppe on why saving money is naturally what people want to do in times of economic uncertainty and why this is exactly the right thing for them to be doing - both in terms of looking out for their own interests and of bringing the recession to its most expeditious resolution.

Of course, by focusing on increasing spending, the federal government is quite simply delaying the end of the current crisis.

 
At 5/16/2009 9:54 AM, Blogger like such as said...

Ahh the old "paradox of thrift" argument...

 
At 5/16/2009 10:01 AM, Anonymous Anonymous said...

"The economic downturn is forcing a return to a culture of thrift that many economists say could last well beyond the inevitable recovery."If the recovery is inevitable, why did congress pass a trillion dollar stimulus bill and condemn our children to years of indentured servitude to pay off this debt?

....oh right, because they didn't want to let a crisis go by without using it as cover for expanding government.

Federal, state and local government spending is now at 45% of GDP.

If you think we have unfettered capitalism in the U.S., you are either ignorant, confused or deluded.

 
At 5/16/2009 5:18 PM, Anonymous Dr. T said...

Pardon me if I'm unimpressed, but saving less than 5% of net income is a rather low bar. With savings so low, it's no wonder that the concept of a 20% down payment on a home purchase is considered outdated.

Two years ago, typical spending was 100% of household income. Now it's 96% of household income. I don't think the 4% drop will be a huge drag on businesses (that have to weather the effects of increased unemployment, increased costs of borrowing, increased costs of regulatory compliance, and the upcoming CO2 cap-and-trade fiasco).

 

Post a Comment

Links to this post:

Create a Link

<< Home