The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
January 26, 2009
The piggybank effect
During the 2002–2007 economic expansion, the personal savings rate fell to below 1 percent of disposable income. The savings rate had declined steadily from over 12 percent in the 1980s' recession. What changed the way people allocated their budgets?
U.S. household wealth grew considerably as home prices and the stock market soared. According to the Wall Street Journal, "Starting in the late 1990s, soaring stocks made Americans feel richer…. Savings jumped for a bit following the 2001 recession, but plummeted afterwards as housing prices rose, again making Americans feel that it wasn't especially important to save."
Behavioral changes across generations may have also affected the attitude toward savings and debt. A study by McKinsey Global Institute shows that baby boomers' reduced savings is what accounts for most of the collapse in the U.S. household savings rate.
Some have been saying that over the past several years Americans had been "living beyond their means," saving little and shopping conspicuously. According to Merrill Lynch economists, the average household owns nearly $40,000 of nonhousing durable goods assets, a number that has tripled since the mid-1980s.
Since the economy slowed last year, consumers have become more cautious with their income. This fact is not surprising given record lows of consumer confidence, declining house prices, a sharply lower and still volatile stock market, and mounting job losses. Consumers now appear to be shifting toward saving. By November 2008, the personal savings rate rose to 2.8 percent. Many expect it to increase further. According to several forecasters, the savings rate is likely to reach nearly 5 percent by 2011, reducing spending relative to what it had been before the recession.
But what will happen when the economy starts growing again? Will consumers behave the same as in the past, returning to lower savings and higher spending? Or will a more frugal mentality continue?
Some Merrill Lynch economists believe this time the rising savings rate is a secular trend. According to them, attitudes toward spending and debt have changed semi-permanently, and the United States is facing what they term a frugal future. However, Macroeconomic Advisers and Oxford Economics estimate the savings rate will begin to decline somewhat as the economy gathers steam in 2011, although it will still remain higher than in 2005–2007. The forecasters think Americans will save between 2.5 percent to 4.5 percent of their disposable income after this recession runs its course—hardly frugal, but perhaps not "beyond their means."
By Sandra Kollen and Galina Alexeenko, senior economic research analysts at the Atlanta Fed
TrackBack URL for this entry:
Listed below are links to blogs that reference The piggybank effect :
- An Update on Labor Force Participation
- Another Look at the Wage Growth Tracker's Cyclicality
- GDPNow's Second Quarter Forecast: Is It Too High?
- Are Small Loans Hard to Find? Evidence from the Federal Reserve Banks' Small Business Survey
- Slide into the Economic Driver's Seat with the Labor Market Sliders
- The Fed’s Inflation Goal: What Does the Public Know?
- Going to School on Labor Force Participation
- Bad Debt Is Bad for Your Health
- Working for Yourself, Some of the Time
- Gauging Firm Optimism in a Time of Transition
- July 2017
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth