Saving Rate Reaches 10 Year High. Good or Bad?

The personal saving rate for Americans reached a ten-year high of 4.2% in the first quarter of 2009, the highest level since 1998 (see chart above), according to the BEA (data here).


From the NY Times:

The economic downturn is forcing a return to a culture of thrift that many economists say could last well beyond the inevitable recovery. This is not because Americans have suddenly become more financially virtuous or have learned the error of their free-spending ways. Instead, these experts say, Americans may have no choice but to continue pinching pennies.

This shift back to thrift may seem to be a healthy change for a consumer class known for spending more than it earns, but there is a downside: American businesses have become so dependent on consumer spending that any pullback sends ripples through the economy.

Fearful of job losses and anxious over housing and stock declines, Americans are squirreling away more of their paychecks than they were before the recession. In the last year, the savings rate — the percentage of after-tax income that people do not spend — has risen to above 4%, from virtually zero.


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