According to the BEA last month both personal income and personal consumption expenditures increased by .1%, an amount somewhat lower than had been anticipated. That means that the personal savings rate, pictured above in a graph from the St. Louis Federal Reserve, is moving sideways at its too-low rate of 3.5%.
My interpretation of that graph is that when people are frightened as they were in the trough of the last recession, they save more. When they feel flush as they did at the peak of the bubble, they save less. Now they’ve returned to the same behaviors they had throughout the first five years of the Aughts: a savings rate that’s too low for a healthy economy.
I would only add that the definition of “flush” includes equity positions. Note that the long steady decline in the savings rate began when the stock market took off……..and ended with its crash. I don’t know what the “right” savings rate is, but I bet its 2x+ the current one.
For an alternative point of view you might want to take a look at this data. Not sure myself quite what to make of it but it is certainly a challenge to a lot of conventional wisdom. http://econompicdata.blogspot.com/2011/12/consumers-dont-care-about-savings-rates.html
Since my take has been that there has been very little change in Americans’ saving habits, I think that’s a substantiation of my views.
Tom –
With all due respect, I think you missed the point. Person’s savings rates did not move relative to the income to expenditure ratio or spread, because they thought the stock market was saving for them. Ooopsey.
They also thought houses would do same for retirement, and yet that false premis is not obvious in the data. Perhaps too short a time frame in the data shown. That would be an interesting line of inquiry.
I see Dave and I sort of crossed in cyberspace. Let me be clear. I think he and I are in synch: people have not changed their habits.
What they had (or thought they had) for the past 30 years were two piggy banks that would innoculate them from a required change in their savings/consumption ratio: equities (their 401k’s, really and their home). Bad economic decisions; at least to the degree as to how robust the returns might be.
Now, reality. And they will change their habits or vote for politicians willing to fleece the prudent and subsidize the profligate, meaning themselves.
This is where Reynolds jumps in and calls me heartless, a nihilist, racist, baby killer or – egad!! – a Republican.
Carry on…………
I don’t know Drew. Suggesting anyone not wealthy is a greedy thief and everyone wealthy is prudent seems a little extreme. But then I don’t find one’s bank account a demonstration of morality and virtue.
“But then I don’t find one’s bank account a demonstration of morality and virtue.”
But half of the country appears to think that way.
“Now, reality. And they will change their habits or vote for politicians willing to fleece the prudent and subsidize the profligate, meaning themselves.”
How about doing something different. At the peak of the subprime bubble, about 1/3 (IIRC) new loans were liar’s loans. How can there be any justification for any financial institution giving out such loans? Exploding ARMs are a bad idea for the huge majority of people, but they were also pushed by the industry. How about we work towards having management at financial institutions work towards the long term best interests of their corporations and of the public, rather than in their own best short term interests?
Steve
But then I don’t find one’s bank account a demonstration of morality and virtue.
Then your addressing the wrong guy, Ben, and mostly the wrong board.
How can there be any justification for any financial institution giving out such loans? Exploding ARMs are a bad idea for the huge majority of people, but they were also pushed by the industry. How about we work towards having management at financial institutions work towards the long term best interests of their corporations and of the public, rather than in their own best short term interests?
That’s just more punishment of the prudent to protect the profligate. No financial person has ever been anything but kind, wise, prudent and frugal, and they ALWAYS look out for the other guy first.