Are Extraordinary U.S. Savings Levels Coming to an End?

During the recession, we all started minding our spend -- companies, nonprofits, families and individuals included (governments, of course, got a pass). Of course, if you're a family or individual lucky enough to be gainfully employed, and you cut back your consumption, the result almost certainly leads to increased savings (or at least debt repayment). I found the chart that consultant Edward Harrison recently shared on Seeking Alpha to be a great reminder of the power of recession to put us into savings mode. Looking at historical U.S. savings levels from 1947 onward, what's most interesting is that until 1995 the quarterly savings rate (based on a rolling 4-quarter average) was awlays above 6%. In the '70s and early '80s, saving peaked at nearly 12% during the inflationary cycle, only to begin to fall off a cliff in 1982.

But after 1995 (and specifically after 2001), the U.S. savings rate plummeted to less than 2% at various points. I believe we can attribute this to a combination of easy credit, escalating home values, and the importation and demand for Chinese goods priced below market (and made artificially cheap by the change in the RMB/dollar peg). It would seem, however, that things are changing. According to Harrison it's important to "notice the surge in savings since the recession began. The rolling 4-quarter average rate hit an all-time low of 1.5% in Q1 2008 when the recession began. As of last quarter it had reached 4.6%. This increase of 3.1% in 7 quarters is without precedent ... we have witnessed an increase in the savings rate the likes of which we have never seen since data tracking began."

We should not get too far ahead of ourselves and assume that the U.S. has become a culture of savers and spend-minders. After all, depending on how you count the savings rate -- many numbers I've seen count consumer-debt repayment as part of the savings rate -- we could still be in a spending frenzy as before, albeit without the freely available credit and second mortgages against which to borrow. Still, I hold out hope that as more consumers really begin to look at how their personal spend matters, we'll begin to put a bit more under the proverbial mattress with every paycheck.

Jason Busch

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