Amid jitters over whether holiday shoppers can give the
economy a year-end lift, here’s an unexpected cause for optimism: Americans
aren’t feeling the need to save as much. The personal savings rate was on the
rise earlier this year, climbing from 4.8% in March to 5.6% in September, the
highest rate in nearly two years. But new revisions from the Commerce
Department show these gains were illusory. The savings rate was dialed down to
5% in September and held steady at that level in October.
Instead of saving that money, consumers bought more than
previously thought, with spending up 2.2% in the third quarter, up from a
previous estimate of 1.8%. And behind that spending may be a bit of good news:
Consumer sentiment has climbed to the highest level since July 2007. Higher confidence and increased spending are
coming alongside a plunge in gasoline prices, which is further freeing up space
in the budget for many families.
If anything, the climbing savings rate represented something
of a puzzle. The savings rate usually falls during periods when net worth is
rising. Earlier this year, the net worth of U.S. households reached a record
$81.5 trillion, according to Federal Reserve data.
That wealth is far from evenly distributed, with much of it
held by the richest of Americans. But that shouldn’t effect the savings rate,
which is also an average for all Americans, both those seeing wealth gains and
those who aren’t.
Some economists would prefer somewhat lower savings, with
the logic that it would goose consumption. Others would prefer higher savings
to help fuel investment in the economy and leave households better prepared for
the future. Both groups would take a stable savings rate as their second choice.
The Federal Reserve is of two minds on the question. It
generally seeks to encourage borrowing with its low interest rates, but Federal
Reserve Chairwoman Janet Yellen has emphasized the importance of
families also having precautionary savings.
Savings have run too low before. In the 2000s, the Commerce
Department’s savings rate fell as low as 1.9%, as households borrowed freely,
even tapping into home equity to fuel spending. That behavior helped drive an
enormous credit boom. Once the bubble burst, many households held little
But with savings rates around 5%, that dire scenario looks
unlikely to repeat. Instead, many families are heading to year-end in financial
health. The unemployment rate is at its lowest level in more than six years,
and wage gains, though slow, have been rising faster than inflation.
At the same time, the recent sharp decline in gasoline
prices represents real relief for many families. According to AAA, the national
average gas price fell to $2.79 a gallon on Thursday, down from $3.03 a month
earlier and nearly 50 cents below the average of $3.28 a gallon at this time
here to access the full article on The Wall Street Journal.