I suppose it had to happen sooner or later. Amazingly the US savings rate has gone from negative .1% to a positive .7%. Okay so it’s not even a 1% savings rate, but seeing a reversal in the number is quite interesting. I remember last year we were all blogging about the fact that it had hit a negative number. Many of us just shook our heads. Oh what a year brings. .7%. If everyone keeps this up maybe we can hit a full 1.4% next year. Maybe I’m a bit cynical but I am happy to see any reversal in the irresponsible financial management of many consumers (and don’t even get me started on the government).
All this being said, now we can listen to the pundits talk about a prolonged recession as people start saving and stop spending. A long long time ago, I pondered what would happen if magically everyone started saving 10% of their income. Back then I was guessing it would cause massive disruptions to our economy for quite awhile. If we continue to see the savings rate go up, I would guess that we will see the recession hang around a lot longer as our economy adjusts to a new reality.
Anyway, enough babbling. Check out the article:
http://news.yahoo.com/s/nm/20080604/us_nm/usa_economy_savings_dc
Could this be related to the downturn in home prices rather than actual “savings”? In another article, they mentioned how the negative savings rate was affected by equity cash outs from homes (nontrivial impact). Just wondering. I doubt many people have increased their “savings”.
Just take look at Japan in the 90’s for a giant positive savings rate and low economic growth. The actually had deflation for an extended period of time, so the money in their mattresses was actually making money for them.
Admittedly, the high savings rate was not the main cause of the economic downturn.