Personal Savings Still Falling, Still Being Praised for Rising

Secretary of the Treasury Tim Geithner says Americans are starting "to save again, after a long period where people were not putting enough aside against the risk of a recession or a job loss." The Associated Press writes, "The U.S. is finally becoming a nation of savers," with a personal savings rate that is "nearly double that of a year ago." The Appleton, Wis. Post-Crescent reports both challenges and opportunities stemming from "the fact that Americans are saving more money today."

But data from the Bureau of Economic Analysis continue to show a decline in the rate of personal savings from the middle of the year:

 

These numbers, from yesterday's BEA report on personal income [pdf], are subject to substantial revision as quarterly and annual data become available. For example, the September rate that BEA now reports as 4.6 percent was initially reported as 3.3 percent. Rates for earlier months also change as new information comes in. There does not appear to be any way to account for these changes in real time (by, for example, estimating that the corrected figures usually move up or down at x percent). As a very helpful BEA statistician explained, "If we saw a consistent bias, we'd correct for it."

That having been said, to the extent that monthly changes in the personal savings rate tell us anything, they indicate the above consensus is wrong: Personal savings began to climb at the end of the Bush Administration, peaked in May, and have been generally falling since that time.

Comments

[Old Mexican]

Secretary of the Treasury Tim Geithner says Americans are starting "to save again, after a long period where people were not putting enough aside against the risk of a recession or a job loss."

I thought savings was a "bad" thing - recalcitrant Keyensian crackpots like Paul Krugman said so....

[Warren]

It's foolish to save now. Spend your money while it's still worth something.

[Old Mexican]

Yeah - buy GOLD.

[Rich]

I wonder how much gold Timmy and Ben own.

[hmm]

I can't believe saving is dropping before the largest consumption based holiday of the year

Still stupid they say it's rising.

[Tim Cavanaugh]

Well, only part of that would be captured in November figures. Also look how the rate increased through November and December 2008. You're right that that short-term measure doesn't really say much, but that hasn't stopped Geithner from putting it in his regular rotation of Economic Good News. I'll stop pointing out it's false when he stops claiming it's true.

[hmm]

I agree. I was just being a smart ass. You can't really use 08 as much of an argument since the world hadn't ended yet. It started to, but hadn't quite got there.

Sort of like having to ignore that ugly dip that occurs in every stock chart when looking at techinicals. Not really a good yard stick for today.

[Old Mexican]

I was just being a smart ass.

And nobody does it better...

[That was a good movie, BTW]

[John Hyland]

Pretty normal! People take out of savings this time of year to buy presents for family and friends. It's Christmas! Where do you think the extra dollars come from for all the extra spending going on. Da!

[Unrelated Question]

Sorry for the Unrelated Question, but does Hit & Run have it's own separate RSS feed? I'm subscribed to Reason's RSS but I only get the articles in Google Reader, but none of the blog posts. Thanks in advance.

[Clich? Bandit]

Yes it does, see the RSS tab at the left.
here

But what I want is a SugarFree RSS feed or even better, Twitter.

For want of a good sadistic and gross story

[Team America]

Excel graphs are so uncool that the actual data is irrelevant.

[?]

I think May was right about when I finally switched from "Oh man the Fed is fuckin' up" to "Oh shit I have to spend all this right now."

But I was oddly stuff-poor. Now I have things, and things to put things in, and places for all those things. It's unpleasant. Shoulda blown it on whores.

[BakedPenguin]

Are you kidding? The data from CRU shows no decline in personal savings over the last hundred years.

[Sudden]

Worry not. I will be contacting the editors of Reason and letting them know that savings denialists should not be published in a respected peer-reviewed journal such as this. The correct charts should show personal savings raising in a hockey stick shape.

[hmm]

I hear they included banks near Starbucks and strip clubs. We all know what happens when you put a bank near a Starbucks and strip club.

Either savings drop 8 dollars at a time or 1 dollar at a time. (something seems inherently wrong with that)

[NAL]

Isn't it true, though, that the savings rate was zero or even negative back before the crisis? It may not be true that savings is rising, but I do think it's fair to say that savings is up since the economy went off the cliff (i.e. that Americans are saving again).

[Tim Cavanaugh]

It's not true that it was zero or negative before the crisis. If you follow the above link to an older H&R post, you'll see some numbers for that. The personal savings rate has not been below zero on an annual basis since the Depression, and it has only gone below zero on a monthly basis once: in either October or September of 2001. And that's disputed as well, because they did some monkeying with loss-taking after the 9/11 attacks.

It's true that negative rates have been reported, but subsequent data jacked those numbers up.

The idea that we were at negative savings before the crisis is widespread -- which of course helps rogues like Geithner make the case that the rate is increasing to a substantial degree. But I don't think you can chalk up to malice what can be explained by laziness. The Ghost of Negative Savings Past persists not because people are trying to make things look better but because by the time the real numbers come in nobody cares anymore.

[hmm]

Are they counting disposable income as being after contractual agreements or pensions that effecting saving? If not there could be a fairly large Phil Jones size adjustment needed.

[CTHORM@IBIS]

This representation is a bit misleading. The BEA only corrects for consistent biases, leaving out the huge effect of unemployment on savings rates. People ARE saving more - by paying down debts. Its difficult to see this in aggregate data because so many people are unemployed and living off of their savings.

[Buttface Central]

What the fuck is going on here? Does that chart NOT show a higher savings rate at the right than at the left?

[CTHORM@IBIS]

Bonus points for actually reading the ugly BEA excel graph.

[hmm]

It's falling in the short run but above anything over the last 10 or so years (pretty sure to lazy to look, I remember 3ish in 2000) even with a decline over the last few months.

Saying it continues to increase is wrong, saying year over year it has increased, or it is still near highs is okay to me.

Context, context, context

[Tim Cavanaugh]

As I said, personal savings began to climb at the end of the Bush Administration, peaked in May, and have been generally falling since that time.

Over a longer timeline the recent uptick looks even less impressive. As noted above, the rates earlier in the decade were a little higher than advertised (though still fairly low).

[Just Pirate]

Are we talking mandatory and pension adjusted? I'm not positive, but I think removing the mandatory and pension savings, only non contractual savings, and you get closer to 0.

[hmm]

fucking name remember and retarded poster.

[Agent Provacateur]

"Everybody" is on teh food stamps Supplemental Nutritional Assistance Program now.You can't have more than 2k in savings and still participate in the agricultural subsidy program.

[Mo]

Aren't YoY comparisons more germane than MoM comparisons? It would clean up seasonal effects. Also, you could then compare the YoY deltas to see the rate of change.

Also, as mentioned above unemployment has been going up for a while, that tends to do a number on savings. One would expect to see a lag between the decline in savings and unemployment rising due to unemployment benefits, severance packages and the like.

[Byron]

Aren't YoY comparisons more germane than MoM comparisons? It would clean up seasonal effects. Also, you could then compare the YoY deltas to see the rate of change.

Yes, but they don't want anyone to interpret the data accurately. Aren't the emporer's new clothes just splendid?!?!

[Tim Cavanaugh]

Also, as mentioned above unemployment has been going up for a while, that tends to do a number on savings. One would expect to see a lag between the decline in savings and unemployment rising due to unemployment benefits, severance packages and the like.

What would be the shape and timing of the lag? When I'm not working full-time my savings increase as a percentage of income because the income figure is way down and I spend as close to nothing as possible. I have also noticed cases where BEA income will rise and savings will go down in the same period.

[Mo]

Don't know the shape and the timing of the lag.

Income rises concurrent with savings declines are often due to periods of time with high returns on investment and/or loose credit. Unrealized capital gains on stocks an increases in the value of your home are not defined as income in the calculation of savings rate. However, people will spend more if their investment account is larger or if their house is worth more. If they take out a HELOC or use their credit card to finance it, expenditures go up without an increase in income. It's possible for someone to do this and still have more money in their accounts due to unrealized gains.