{"id":32343,"date":"2022-12-21T15:52:00","date_gmt":"2022-12-21T15:52:00","guid":{"rendered":"https:\/\/www.lifeandnews.com\/articles\/?p=32343"},"modified":"2022-12-21T16:01:10","modified_gmt":"2022-12-21T16:01:10","slug":"americans-personal-savings-rate-is-near-an-all-time-low-an-economist-explains-what-it-means-as-a-potential-recession-looms","status":"publish","type":"post","link":"https:\/\/www.lifeandnews.com\/articles\/americans-personal-savings-rate-is-near-an-all-time-low-an-economist-explains-what-it-means-as-a-potential-recession-looms\/","title":{"rendered":"Americans\u2019 personal savings rate is near an all-time low \u2013 an economist explains what it means as a potential recession\u00a0looms"},"content":{"rendered":"\n<p><a href=\"https:\/\/theconversation.com\/profiles\/arabinda-basistha-1365641\">Arabinda Basistha<\/a>, <em><a href=\"https:\/\/theconversation.com\/institutions\/west-virginia-university-1375\">West Virginia University<\/a><\/em><\/p>\n\n\n\n<p><em>The rate at which Americans are saving money <a href=\"https:\/\/fred.stlouisfed.org\/series\/PSAVERT\">has dipped close to an all-time low<\/a>, according to the Bureau of Economic Analysis. The personal savings rate was 2.3% as of October, down from 7.3% a year earlier. It\u2019s the lowest since July 2005, when the rate hit a record low of 2.1%.<\/em><\/p>\n\n\n\n<p><em>We asked <a href=\"https:\/\/scholar.google.com\/citations?user=0ujPNgoAAAAJ&amp;hl=en&amp;oi=ao\">Arabinda Basistha<\/a>, an economist at West Virginia University, to explain the personal savings rate, what\u2019s driving it so low and what it means as a potential recession looms in 2023.<\/em><\/p>\n\n\n\n<h2>What is the personal savings rate?<\/h2>\n\n\n\n<p>The personal savings rate measures how much of Americans\u2019 after-tax, or disposable, income is left over after spending on bills, food, debt and everything else. Calculated and reported by <a href=\"https:\/\/www.bea.gov\/resources\/learning-center\/what-to-know-income-saving\">the U.S. Bureau of Economic Analysis<\/a>, it is an important component of the financial security of American families.<\/p>\n\n\n\n<p>The latest data shows Americans are saving just 2.3%, or US$2.30 of every $100 they earn after paying taxes, down from 7.5% as recently as December 2021. Historically, that\u2019s very low.<\/p>\n\n\n\n<p>From 2015 to 2019, for example, <a href=\"https:\/\/fred.stlouisfed.org\/series\/PSAVERT\">this rate averaged around 7.6%<\/a>. It rose dramatically during the COVID-19 shutdown in early 2020, to a record high of 33.8%. With restaurants, entertainment venues and almost <a href=\"https:\/\/www.ajmc.com\/view\/a-timeline-of-covid19-developments-in-2020\">everything else closed<\/a>, Americans had fewer things to spend money on.<\/p>\n\n\n\n<p>That\u2019s changed as economies have opened up and people eager to travel and dine out have begun to spend the money they had saved.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-wp-embed is-provider-datawrapper wp-block-embed-datawrapper\"><div class=\"wp-block-embed__wrapper\">\n<iframe class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" title=\"Savings near record low\" src=\"https:\/\/datawrapper.dwcdn.net\/0ITL7\/2\/#?secret=Q1bNHeMGvV\" data-secret=\"Q1bNHeMGvV\" scrolling=\"no\" frameborder=\"0\" height=\"400\"><\/iframe>\n<\/div><\/figure>\n\n\n\n<h2>Will the savings rate decline continue?<\/h2>\n\n\n\n<p>American consumers usually <a href=\"https:\/\/research.stlouisfed.org\/publications\/page1-econ\/2014\/11\/01\/smoothing-the-path-balancing-debt-income-and-saving-for-the-future\/?&amp;utm_source=fred.stlouisfed.org&amp;utm_medium=referral&amp;utm_term=related_resources&amp;utm_content=&amp;utm_campaign=pageone\">do not change<\/a> their consumption and saving behavior dramatically.<\/p>\n\n\n\n<p>So to understand this decline, it\u2019s important to add some historical context.<\/p>\n\n\n\n<p>The last time the savings rate fell this low, in 2005, it was part of a trend that lasted several years. From 1998 to 2004, rates averaged about 5.4%, slipping to 3.3% from 2005 to 2007. Thus the 2.1% rate recorded in July 2005 should be seen as part of a low-savings rate phase.<\/p>\n\n\n\n<p>In recent years, Americans have been saving more of their disposable income. The savings rate averaged nearly 9% in 2019 just before the pandemic stifled spending. This led to the massive swing upward in savings.<\/p>\n\n\n\n<p>An <a href=\"https:\/\/www.federalreserve.gov\/econres\/notes\/feds-notes\/excess-savings-during-the-covid-19-pandemic-20221021.html\">October 2022 study<\/a> by the Federal Reserve found that U.S. households accumulated $2.3 trillion during the pandemic, thanks in part to about <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2022-11-11\/stimulus-checks-left-americans-flush-with-cash-making-fed-s-job-harder?sref=Hjm5biAW\">$1.5 trillion in direct fiscal support<\/a>.<\/p>\n\n\n\n<p>Rates swung again in the other direction, as consumer spending has surged and people use up those excess savings. Against this backdrop, I believe it is quite unlikely that the current low rates will continue for long, as consumers adjust back to pre-2020 patterns.<\/p>\n\n\n\n<h2>What does the drop in savings signal about the state of Americans\u2019 finances?<\/h2>\n\n\n\n<p>While the savings rate is important, it doesn\u2019t give us the full picture of Americans\u2019 financial health. Moreover, one should not put too much importance on a single set of recent data, as future revisions <a href=\"https:\/\/fredblog.stlouisfed.org\/2014\/05\/the-vanishing-negative-savings-rate\/?utm_source=series_page&amp;utm_medium=related_content&amp;utm_term=related_resources&amp;utm_campaign=fredblog\">can be large<\/a>.<\/p>\n\n\n\n<p>A few other measures are necessary to assess the state of household finances.<\/p>\n\n\n\n<p>First, current delinquency rates \u2013 the share of all loans that are past due for at least 30 days \u2013 <a href=\"https:\/\/fred.stlouisfed.org\/series\/DRALACBN\">are at just 1.2%<\/a>, the lowest since at least the 1980s. The <a href=\"https:\/\/fred.stlouisfed.org\/series\/DRCLACBS\">rate is 1.9%<\/a> for consumer loans and <a href=\"https:\/\/fred.stlouisfed.org\/series\/DRCCLACBS\">2.1% for credit cards<\/a>. Both rates have increased since 2021 but are still historically low.<\/p>\n\n\n\n<figure class=\"wp-block-embed is-type-wp-embed is-provider-datawrapper wp-block-embed-datawrapper\"><div class=\"wp-block-embed__wrapper\">\n<iframe class=\"wp-embedded-content\" sandbox=\"allow-scripts\" security=\"restricted\" title=\"Consumer debt deliquencies are way down\" src=\"https:\/\/datawrapper.dwcdn.net\/fE55O\/2\/#?secret=R2bMXC3srv\" data-secret=\"R2bMXC3srv\" scrolling=\"no\" frameborder=\"0\" height=\"400\"><\/iframe>\n<\/div><\/figure>\n\n\n\n<p>The low rates <a href=\"https:\/\/www.federalreserve.gov\/econres\/notes\/feds-notes\/why-is-the-default-rate-so-low-20210304.html\">are partly due<\/a> to the <a href=\"https:\/\/libertystreeteconomics.newyorkfed.org\/2020\/11\/following-borrowers-through-forbearance\/\">pandemic forbearance programs<\/a> and fiscal support, but still show Americans are in pretty good shape financially.<\/p>\n\n\n\n<p>Another metric worth looking at is the household debt to gross domestic product ratio. This measures the debt burden of U.S. households relative to the size of the economy. The <a href=\"https:\/\/fred.stlouisfed.org\/series\/HDTGPDUSQ163N\">latest data from June 2022 shows<\/a> the ratio at 76%, which is near the <a href=\"https:\/\/tradingeconomics.com\/united-states\/households-debt-to-gdp\">lowest in about two decades<\/a>. Ahead of the 2007-2009 recession, the ratio was significantly higher, at about 100%.<\/p>\n\n\n\n<p>A third measure of Americans\u2019 financial health is the share of disposable income spent on payments for mortgages and other debts. U.S. households <a href=\"https:\/\/fred.stlouisfed.org\/series\/TDSP\">spent about 9.6% of their incomes<\/a> servicing debts in the second quarter of 2022, well below the 12.8% average from 2005 to 2007.<\/p>\n\n\n\n<h2>So if there\u2019s a recession in 2023, does this mean Americans will be ready for it?<\/h2>\n\n\n\n<p>Adding all this information together, household finances look quite stable and able to withstand moderate economic risks to the U.S. economy.<\/p>\n\n\n\n<p>This is not to argue that a persistently low savings rate will not be an issue in the future. If the savings rate remains low for another year, it will weaken household financial positions.<\/p>\n\n\n\n<p><a href=\"https:\/\/theconversation.com\/profiles\/arabinda-basistha-1365641\">Arabinda Basistha<\/a>, Associate Professor of Economics, <em><a href=\"https:\/\/theconversation.com\/institutions\/west-virginia-university-1375\">West Virginia University<\/a><\/em><\/p>\n\n\n\n<p>This article is republished from <a href=\"https:\/\/theconversation.com\">The Conversation<\/a> under a Creative Commons license. Read the <a href=\"https:\/\/theconversation.com\/americans-personal-savings-rate-is-near-an-all-time-low-an-economist-explains-what-it-means-as-a-potential-recession-looms-196333\">original article<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Arabinda Basistha, West Virginia University The rate at which Americans are saving money has dipped close to an all-time low, according to the Bureau of Economic Analysis. The personal savings rate was 2.3% as of October, down from 7.3% a year earlier. It\u2019s the lowest since July 2005, when the rate hit a record low [&hellip;]<\/p>\n","protected":false},"author":44,"featured_media":32344,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[277],"tags":[7958,13177,13174,13176,13175,1795,1580],"_links":{"self":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32343"}],"collection":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/users\/44"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/comments?post=32343"}],"version-history":[{"count":1,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32343\/revisions"}],"predecessor-version":[{"id":32345,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/posts\/32343\/revisions\/32345"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media\/32344"}],"wp:attachment":[{"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/media?parent=32343"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/categories?post=32343"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lifeandnews.com\/articles\/wp-json\/wp\/v2\/tags?post=32343"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}