U.S. Saving: Not Quite As Bad As Sometimes Advertised

Last week's report that the US personal saving rate dipped further into negative territory last year prompted similar responses from Steven Kyle at Angry Bear and Barry Ritholtz at The Big Picture.  Said Steven:

This can’t go on indefinitely but the longer it does the more unpleasant it will be to unwind it. Time to batten down the financial hatches folks.

Said Barry:

Yesterday, DF asked about the negative savings rate. I noted the RM column I wrote last June (Ignore Statistical Oddities at Your Peril) in response. Like all unsustainable things, they will continue until they no longer can. This is often for far longer than expected, but not forever (an admittedly large range of time).

They may be both be correct, but on this one Steven's sources are a bit better than Barry's.  Steven has pgl around to point out that the most recent data is about personal saving by households -- not private saving (which includes business saving) or national saving (which adds government surpluses to private saving).  Barry is less fortunate:

As Abelson points out this morning, "the only time ever before that our worthy population had two years in a row of negative savings, as we did in '05 and '06, was in those heartbreak years, 1932 and 1933"...

A fresh take on the subject comes courtesy of MacroMaven's Stephanie Pomboy (via Alan Abelson). Stephanie notes not just the negative national savings rate, but two other relevant data points: The ratio of cash to debt, and how that cash and debt is distributed in the country...

So, for the record:

   

   

These statistics only cover the period through the third quarter of last year, but based on what we know about the federal deficit, corporate profits, and investment spending in the fourth quarter, it is a safe bet that the storyline will not change: Though personal saving rates failed to rise out of negative territory, overall saving in the US -- though still low by historical standards -- actually improved in 2006.

The claim that households may be especially illiquid at the moment is an interesting one, and something to think about. And you are certainly entitled to fret that national saving is still too low for our own good.  But we might as well acknowledge progress when it appears (slight as it is).

UPDATE: Tom Blumer at Bizzy Blog links to the folks at OpinionJournal.com reminding us that saving calculated from the National Income and Product Accounts does not really measure changes in the value of assets -- a more appropriate measure of saving.  I would, however, note knzn's call for caution in thinking about wealth from housing.

UPDATE, THE SECOND: Mark J. Perry takes the net worth angle too.

UPDATE, THE THIRD: pgl pokes some holes in the claim that the saving behavior of US households will look much better if only we focus on changes in net worth.

UPDATE, THE FOURTh: Steven Kyle has some follow-up thoughts (about which I have no quarrel).