Personal Savings at 74 year low

DosEquis · 02-01-2007, 02:18 PM

Personal savings drop to a 74-year low - Stocks & Economy - MSNBC.com

Originally Posted by msnbc

WASHINGTON - People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.

The Commerce Department reported Thursday that the savings rate for all of 2006 was a negative 1 percent, meaning that not only did people spend all the money they earned but they also dipped into savings or increased borrowing to finance purchases. The 2006 figure was lower than a negative 0.4 percent in 2005 and was the poorest showing since a negative 1.5 percent savings rate in 1933 during the Great Depression.

For December, consumer spending rose a solid 0.7 percent, the best showing in five months, while incomes rose by 0.5 percent, both figures matching Wall Street expectations.

The savings rate has been negative for an entire year only four times in history — in 2005 and 2006 and in 1933 and 1932. However, the reasons for the decline in the savings rate were vastly different during the two periods.

During the Great Depression when one-fourth of the labor force was without a job, people dipped into savings in an effort to meet the basic necessities of shelter and clothing.

Economists have put forward various reasons to explain the current lack of savings. These range from a feeling on the part of some people that they do not need to save because of the run-up in their investments such as homes and stock portfolios to an effort by many middle-class wage earners to maintain their current lifestyles even though their wage gains have been depressed by the effects of global competition.

Whatever the reason for the low savings, economists warn that it the phenomenon exists at a particularly bad time with 78 million baby boomers approaching retirement age. Instead of building up savings to use during retirement, baby boomers are continuing to spend all their earnings.

The savings rate is computed by taking the amount of personal income left after taxes are paid, an amount known as disposable income and subtracting the amount of spending. Since the figure has dipped into negative territory, it means consumers are spending all of disposable income and then some.

For December, the savings rate edged down to a negative 1.2 percent, compared to a negative 1 percent in November. The savings rate has been in negative territory for 21 consecutive months.

The 0.7 percent rise in personal spending was the best showing since a similar gain in July. It followed increases of 0.5 percent in November and 0.3 percent in October and reflected solid spending by consumers during the Christmas shopping season.

Consumer spending posted a solid rebound in the final three months of the year, helping to lift overall economic growth to a rate of 3.5 percent during that period, up significantly after lackluster growth rates in the spring and fall.

Incomes were up 0.5 percent in December, the best showing since a similar increase in September.

On the inflation front, a gauge tied to consumer spending that is preferred by the Federal Reserve edged up by 0.1 percent in December. This gauge, which excludes volatile food and energy prices, was up 2.2 percent over the past 12 months ending in December, still above the Fed’s comfort zone of 1 percent to 2 percent.

What do you economy types think of this? What kind of conclusions, positive, negative, or both can you make when you read this type of news?

Personally I think it verifies that consumer spending, not supply side tax cut bs, really does drive a successful economy. I also think that since people are over spending we are going to have some consequences later. People can only finance so much before the banks won't give them any more money. When we reach that point consumer spending is going to drop off significantly and so will the economy. Also, since we have few people saving money and actually acquiring debt I think it puts added emphasis on saving social security.

I think we should also look at the similaritys between the depression and today. Some may even venture to call them 'warning signs'. A couple examples include the income gap that is getting bigger between poor/middle and the rich along with the savings rate mentioned above.

6SpeedTA95 · 02-01-2007, 02:23 PM

Well these are fairly skewed in most cases. WSJ ran a great article on this about a week ago. Savings rates are low in the country there is no doubt about it but these stats factor in many people that spend much more than they bring in. Students are a big example. Another thing these studies dont show are retirement savings.

I think there's definately a savings problem in this country but the statistics are flawed and making comparisons on this to 70 years ago is ridiculous simply because things like 401k's weren't around then.

Americans aren't saving enough but they're saving more than these studies lead us to believe.

edit: calling supply side bs is just flat wrong. The problem with many supply siders, however, is that they do not recognize that demand is also an important element of economic growth. Supply and incentive are the biggest because those two generate demand, however, you can not ignore the demand side of the equation.

Is this a bad thing? In general yes, lack of savings is not good for the long term stability of the economy, but as I mentioned earlier these stats are typically scewed up. I think we as a society should save more and it would act as a mild booster to the economy in the long run, however, we are saving as a society just in vehicles that do not typically show up in these reports.

JaJae · 02-01-2007, 02:41 PM

A lot of this is a direct result of the nanny state our country is moving towards. Personal responsibility is being taken out of the equation. Less young people are planning ahead towards retirement.

I don't think this is linked to the economy as much as it is linked to the people just not living within their means. Aside from less savings people are also putting themselves in more debt, buying more expensive houses for their income and putting more money on credit cards. On top of all this more Americans are going to college than they were 74 years ago which puts a burden on the parents and their children.

6SpeedTA95 · 02-01-2007, 02:45 PM

Originally Posted by JaJae

A lot of this is a direct result of the nanny state our country is moving towards. Personal responsibility is being taken out of the equation. Less young people are planning ahead towards retirement.

I don't think this is linked to the economy as much as it is linked to the people just not living within their means. Aside from less savings people are also putting themselves in more debt, buying more expensive houses for their income and putting more money on credit cards. On top of all this more Americans are going to college than they were 74 years ago which puts a burden on the parents and their children.

The biggest drain on savings stats is students according to the articles I've read.

DosEquis · 02-01-2007, 03:16 PM

Originally Posted by JaJae

A lot of this is a direct result of the nanny state our country is moving towards. Personal responsibility is being taken out of the equation. Less young people are planning ahead towards retirement.

I don't think this is linked to the economy as much as it is linked to the people just not living within their means. Aside from less savings people are also putting themselves in more debt, buying more expensive houses for their income and putting more money on credit cards. On top of all this more Americans are going to college than they were 74 years ago which puts a burden on the parents and their children.

I think the link to the economy will come when 'they' can't afford to spend at their current pace anymore.

The thing with more americans going to college is that, awhile back you could graduate from highschool and make 30-40k right out doing some sort of skilled labor when we actually had a decent manufacturing base. Now it takes 20-30-60k education to go start at 40k because of this globalization that some people seem so fond of.

6SpeedTA95 · 02-01-2007, 04:41 PM

Originally Posted by DosEquis

I think the link to the economy will come when 'they' can't afford to spend at their current pace anymore.

The thing with more americans going to college is that, awhile back you could graduate from highschool and make 30-40k right out doing some sort of skilled labor when we actually had a decent manufacturing base. Now it takes 20-30-60k education to go start at 40k because of this globalization that some people seem so fond of.

We're a more educated society, we're more of a service based society, our competitive advantage is not in broad manufacturing. We still do fairly well in some aspects of manufacturing but we also shoot ourselves in the foot with unions, entitlement mentality of the workers which leads to crappy work, etc.

You can still get 30k jobs pretty easy without a degree right out of high school or with just a year or so of experience. 40k is a bit tougher, but degrees are an essential part of todays society, like it or not thats how it is.

60k education is worth it when you figure the return on investment it is likely to provide over your lifetime.

ballz2wallz · 02-01-2007, 04:54 PM

My personal savings account is at an all-time high

lew · 02-01-2007, 05:05 PM

You add the three I's together (Income taxes, Inflation, and Interest) and you get where we are today.

Everyone is going to get more and more and more broke throughout the future.

6SpeedTA95 · 02-01-2007, 05:05 PM

Originally Posted by ballz2wallz

My personal savings account is at an all-time high

My savings acct isn't but my net worth is

ballz2wallz · 02-01-2007, 05:06 PM

Two words: liquid ate!

6SpeedTA95 · 02-01-2007, 05:09 PM

Originally Posted by lew

You add the three I's together (Income taxes, Inflation, and Interest) and you get where we are today.

Everyone is going to get more and more and more broke throughout the future.

I think it has a lot to do with personal habbits, income taxes aren't particularly high right now compared with where they've been historically.

lew · 02-01-2007, 05:29 PM

Originally Posted by 6SpeedTA95

I think it has a lot to do with personal habbits, income taxes aren't particularly high right now compared with where they've been historically.

By income tax, I also mean ALL taxes - which are pretty high.

But I completely agree with personal responsibility. The problem is that we, as a society, no longer care to own anything. Everyone is concerned with how much credit they can get. Credit, credit, credit. And when everything you're buying is on credit, depend on the government to take care of you when you're old, and the government wastes trillions of dollars on wars and other things....well then, that's just a recipe for disaster.