Are Americans Really Saving More?

Although officials on President Obama's economic team continue to claim that the personal savings rate of Americans is increasing, this rate has actually been declining since May. In fact, it's possible that a recovery in personal savings that began late in the Bush Administration ran out of steam early in the Obama Administration. Here is how the numbers have been trending since December:

These numbers are subject to regular, substantial change as the Bureau of Economic Analysis gets more complete data. For example, the May peak was initially claimed to be a full percentage point higher, at 6.9 percent, than it is now. September's 3.3 percent will be subject to revision up or down -- and all the revisions made to monthly statistics this year have been down.

Yet the rising personal saving rate continues to be a favorite talking point about the recovery. On Sunday, Treasury Sec. Tim Geithner made the claim his closing comment in an interview with Meet the Press's David Gregory:

You're seeing them do the rational thing, David, you're seeing Americans start to save again. After a long period where people were not putting enough aside against the risk of a recession or a job loss, you're seeing people start to save again. And that's a healthy, necessary adjustment. It'll help make sure the growth is more stable, more sustainable in the future.

Geithner and others are right about one thing. The personal savings rate is a little more than one percent higher now than it was in 2005:

However, the frequent revision of these numbers means that even the uptick in personal savings over the last four years may be less dramatic in relative terms. For example, while many ignoramuses (including this ignoramus) have claimed that the American savings rate entered negative territory in the early years of the 21st century, this is not true. The personal savings rate has not been negative on an annual basis since the Great Depression. On a monthly basis, the rate has gone negative only once, in September 2001 -- and even this is debatable given some changes in accounting related to the 9/11 attacks.

Finally, there is not much meaning encoded in month-to-month changes in the savings rate. The claim that Americans are upping personal savings as part of the recovery -- in addition to being logically faulty, given the Administration's exertions to drive the recovery by increasing spending on real estate, new cars and other items -- is unsupported. If anything the data point to a trivial increase in savings, which began under the previous administration.

Comments

[Grandpa Whithers]

They're not saving as well as members of Congress:

Report: Congress filled with millionaires

Talk about bad timing.

As Washington reels from the news of 10.2 percent unemployment, the Center for Responsive Politics is out with a new report describing the wealth of members of Congress.

Among the highlights: Two-hundred-and-thirty-seven members of Congress are millionaires. That's 44 percent of the body - compared to about 1 percent of Americans overall.

CRP says California Republican Rep. Darrell Issa is the richest lawmaker on Capitol Hill, with a net worth estimated at about $251 million. Next in line: Rep. Jane Harman, D-Calif., worth about $244.7 million; Sen. Herb Kohl, D-Wis., worth about $214.5 million; Sen. Mark Warner, D-Va., worth about $209.7 million; and Sen. John Kerry, D-Mass., worth about $208.8 million.

All told, at least seven lawmakers have net worths greater than $100 million, according to the Center's 2008 figures.

http://www.twincities.com/news.....source=rss

[Grandpa Whithers]

CRP's analysis suggests that some lawmakers did well for themselves between 2007 and 2008, even as many Americans lost jobs and saw their savings and their home values plummet. Senate Minority Leader Mitch McConnell, R-Ky., gained about $9.2 million. Sen. James Inhofe, R-Okla., gained about $3 million, Sen. Daniel Inouye, D-Hawaii, had an estimated $2.6 million gain, and Richard Shelby, R-Ala., gained about $2.8 million.

Some lawmakers have profited from investments in companies that have received federal bailouts; dozens of lawmakers are invested in Wells Fargo, Citigroup, Goldman Sachs and Bank of America.

[MattXIV]

Actually, the goal of aggregate demand stimulus is to decrease the savings rate in favor of consumption. What seems to have happened is that the administration has bought a small uptick in consumption at the expense of decreased savings. This is more or less what the policies were designed to do so the falling savings rate is not the least bit suprising.

This is either the manifestation of some truly tortured reasoning (the stimulus works by suppressing savings, but the stimulus didn't work, so savings must be on the rise) or an indicator that Obama's economic team doesn't feel compelled to be accurate or even coherent in their public statements. Don't know which is true, but the later explaination is slightly less scary.

[Tim Cavanaugh]

Right, because in the latter you can at least hope they know what's going on.

I didn't think it would be gentlemanly to note this in the post, but: Treasury did not respond to multiple phone calls and emails requesting clarification on these and other Geithner statements.

[Ebeneezer Scrooge]

And you became a gentleman when?

Now don't go disappointing me here. I've liked reading your irreligious banterings about the economy. But if you're going to go getting gentlemanly on me now, I'm not sure I'll be able to trust your judgment anymore.

[hmm]

Why save when you don't need equity in anything and money is free?

[Fist of Etiquette]

Spend those dollars now, while they're still worth something.

[Burrow Owl]

"Spend those dollars now, while they're still worth something."

No shit.
If events continue to evolve in their current direction, you'll be glad you did.
FRN's are an extremely poor substitute for toilet paper.
Trust me on this.

[Mike Huckabee]

Jesus saves.

[Ebeneezer Scrooge]

But will he save the dollar?

[nyulawlibertarian]

Why would you save when you have to keep your wealth in dollars or be taxed over and over again. Spend as fast as you can has been the policy of the Fed since its inception. If you think savings is a virtue and spending a vice you should see why our monetary system is immoral. When wealth comes not from creation and saving but fraud we as a nation have entered a perilous situation

[TP]

Well, K-Mart/Sears, has recently "reintroduced" layaway. Anybody remember what that is/was? Technically, it's not saving, but it's not borrowing either.

[Rich]

Once upon a time I bought some jewelry that way.

Hey, how about we buy government services on layaway?

[hmm]

There was an interesting article maybe 3 or four Christmases ago about stores not longer offering lay away due to the use of credit cards. Which speaks volumes about the utility of instant gratification.

[Episiarch]

"Yeah, we know how you did it. Congratulations. The bank gave you a credit card. It doesn't make you better than me! But you see, I don't have credit, because I'm a bad risk and I don't pay my bills on time. So I have to work for what I have."

[Tulpa]

The saving rate doesn't matter. The saving-or-creating rate is the metric we use now.

[hmm]

Thread won.

[Zoology Sat.]

Octopuses are highly intelligent, likely more so than any other order of invertebrates. The exact extent of their intelligence and learning capability is much debated among biologists, but maze and problem-solving experiments have shown that they do have both short- and long-term memory. Their short lifespans limit the amount they can ultimately learn. There has been much speculation to the effect that almost all octopus behaviors are independently learned rather than instinct-based, although this remains largely unproven. They learn almost no behaviors from their parents, with whom young octopuses have very little contact.

An octopus opening a container with a screw cap

An octopus has a highly complex nervous system, only part of which is localized in its brain. Two-thirds of an octopus's neurons are found in the nerve cords of its arms, which have a remarkable amount of autonomy. Octopus arms show a wide variety of complex reflex actions arising on at least three different levels of the nervous system. Some octopuses, such as the Mimic Octopus, will move their arms in ways that emulate the movements of other sea creatures.

In laboratory experiments, octopuses can be readily trained to distinguish between different shapes and patterns. They have been reported to practice observational learning, although the validity of these findings is widely contested on a number of grounds. Octopuses have also been observed in what some have described as play: repeatedly releasing bottles or toys into a circular current in their aquariums and then catching them. Octopuses often break out of their aquariums and sometimes into others in search of food. They have even boarded fishing boats and opened holds to eat crabs.

In some countries, octopuses are on the list of experimental animals on which surgery may not be performed without anesthesia. In the UK, cephalopods such as octopuses are regarded as honorary vertebrates under the Animals (Scientific Procedures) Act 1986 and other cruelty to animals legislation, extending to them protections not normally afforded to invertebrates.

[Ebeneezer Scrooge]

All this worrying about what's going on in the economy might have mattered once upon a time. Because there might have been some remote, outside chance that the US economy was going to recover.

We just got socialized medicine shoved up our asses.

There is no cure for this kind of constipation.

[Bill Woolsey]

Tim C.

If people are saving because they believe that low aggregate expenditure will leave the economy depressed, that is a bad thing. The least bad option would be to maitain aggregate expenditure, proving their fears misguided, and persumably they will save less once they realize they were wrong.

If, on the other hand, people are saving to increase (or rebuild) their net worth, that is a good thing. Under certain conditions that might result in depressed expenditure, which may be a bad thing, but what should happen is that investment, spending by firms on capital goods, should expand to match the increase in saving. And that would be a good thing.

While some versions of the Austrian Business Cycle theory claim that increased saving might lead to recovery, I doubt that is what treasury has in mind.

My view is that because the malinvestment in housing is only slightly related (if at all) to lower interest rates from the past, that inceased saving would lead to lower interest rates (ceteris paribus) and so increased housing demand is pretty much a drop in the bucket. And so, the need to shift resources from housing to other sorts of capital goods will still exist.

Far be it from me to say that people shouldn't save if they want to increase their net worth. But saving because they fear recession is not good. If the saving really did cause recession, that is bad. If the fears prove groundless, then a mistake has been made.

By the way, I think private saving is the better measure. It includes business saving, but households own the firms that are saving.

[Invisible Finger]

That's a generation and a half of not saving very much.

We're seeing the basic flaw of democracy: when the majority are too stupid to know how to take care of themselves, the country will slowly eat itself, a la early 20th century Germany.