"The U.S. personal saving rate’s negative turn in 2005 has raised concerns that Americans may have to curtail their spending and accept a lower standard of living as they pay off rising debts. However, a closer look at saving trends suggests that the risks to household well-being are overstated. The surge in energy costs may have temporarily dampened saving, while the accounting of household income from stock holdings may be skewing saving estimates. Moreover, broad measures of saving have remained positive, and household wealth is on the rise.
Personal saving has been negative since the second quarter of 2005. For 2005 as a whole, current data from the Bureau of Economic Analysis (BEA) show a personal saving rate of -0.4 percent—a figure that dropped to -1.1 percent in 2006. These readings are well below the 1999-2004 average of 2.2 percent, a good deal below the 1993-98 average of 4.6 percent, and considerably below the 1950-92 norms of 8.6 percent.
Negative saving would seem to point to growing indebtedness and, ultimately, a decline in living standards, as Americans tighten their belts to pay off debts. As Mr. Micawber noted in David Copperfield, “Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”
Concerns that negative saving could jeopardize U.S. household well-being suggest that a closer look at the recent saving trends and their sources is warranted. In this edition of Current Issues, we identify some of the forces depressing measured personal saving, examine how broader saving measures have fared, and assess the likelihood that low saving rates will constrain consumer spending and impede growth in the nation’s living standards in the near term."
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